SIP Decryption – BW Businessworld

A systematic investment plan, also known as a SIP, is a tool provided by mutual funds to help investors make disciplined investments. The SIP option allows an investor to make fixed investments in the mutual fund of his choice at predetermined intervals.

The pre-determined SIP periods can be weekly, monthly, quarterly, semi-annually or annually, and the fixed amount can be as low as Rs. 500 or more. So the beauty is that to start investing you don’t need a high initial investment and it costs your wallet nothing. Once set, money is deducted at selected intervals regardless of market conditions.

Advantages of EPS

Advantage of capitalization

One of the main benefits of SIP is that it gives you the power to dial. By investing through SIP, say on a monthly basis, the compounding effect ensures that you get returns on both your principal (the amount you have invested) and the gains on your principal which, in the long run, will be visible as the form of higher yields. Therefore, it is important to initiate a SIP as early as possible in your investment journey.

Consider, for example, the constitution of a retirement corpus. If an investor initiates a monthly SIP of Rs. 5,000 from the age of 25 and then upon retirement, the corpus would be around Rs. 2.76 crores

However, if you started with the same amount five years later at the age of 30, the corpus created would only be around Rs. 1.54 crore – difference of a whopping Rs. 1.21 crore, which you can call the “cost of delaying SIP start-up”.

Instill discipline

You can easily achieve your financial goals with SIP by making frequent small investments without compromising your current financial situation. Financial goals can be short, medium or long term. To achieve each of these objectives, launch a SIP and associate your needs with it.

For short-term goals (up to three years) investors can sip in a debt fund while for medium-term goals (up to five years) investors can consider hybrid strategies and for Long-term investors can sip into equity programs. Here, SIP saves you in a disciplined way. Long-term SIPs should be on every investor’s to-do list. Once discipline is established, nothing prevents the investor from achieving his goals.

Before creating a SIP, it is crucial to determine how much money you will need to invest to achieve your financial goals and then backtrack. This would ensure that your long-term financial goals are met. Today, it’s easy to register a SIP account online and start your long-term investment journey to financial freedom.

Average costs in rupees

Due to the average cost in rupees, SIP tends to be an advantageous investment tool. With SIP, an investor buys fewer units of the fund when the market is strong, but when the market corrects, the investor has the opportunity to buy more units, thereby averaging the cost of the units over time. time. Over a full market cycle, by investing through SIP regardless of market conditions, an investor has the opportunity to generate outsized returns. This is the secret of all successful investors.
Now that you know how SIPs can help you achieve your financial goals, it’s time to define your goals and determine the time frame in which they need to be achieved. Choose your desired mutual fund wisely and increase the investment amount whenever possible.

To conclude, SIPs not only help accumulate money over time, but also help instill the discipline of investing over a period of time and, to some extent, protect investors from market volatility. . Combined with a judicious selection of funds, it can help build long-term wealth. Remember slow but steady wins the race and so does SIP. What makes SIP beautiful and powerful is its simplicity. Every income-based investor can initiate an SIP and start working on building long-term wealth.

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