Systematic Investment Plan (SIP) is similar to a Recurring Deposit. Every month on a specified date an amount you choose is invested in a mutual fund scheme. You’ll be amazed to learn about the many advantages of investing through Systematic Investment Plan (SIP)
Through a sip in mutual fund, an investor pledges to invest a fixed amount of money on a monthly basis in a mutual fund scheme for a predetermined time period. Sip investment also provides the investor with the flexibility to increase the amount of his monthly installment at any time.
Investments do not necessarily mean that one has to collect a substantial chunk of money to invest. One can start investing with a very small amount through an SIP.
Easy to Invest
When we think monthly installments, we generally think of one more date to remember apart from the bill payment dates. That is not the case with an SIP. You have the convenience of direct debit of your SIP installments through Electronic Clearing Service (ECS) facility. Your SIP amount automatically gets debited from your bank account on the predetermined date.
Helps in Compounding Your Wealth
Getting rich is simpler than you think, here’s a simple formula to get rich:
Start Early + Invest Regularly = Create Wealth
Systematic investing has a compounding effect on your investments. In the long term, an investment as low as Rs 5000/- per month swells up into a huge corpus. This can be best explained by the following graph. The graph shows advantages of starting early. If an investor starts early, even with lower invested amount he can create a large corpus.
Invest Regularly – Fights Market Volatility
Every investor dreams of purchasing stocks at a low price and selling it at a higher price. But, how does one know whether any given time is the right time to buy or sell? Many retail investors try to judge the market movements and end up losing their monies in the long term. A more successful strategy is ‘Rupee Cost Averaging’ wherein you invest a fixed amount regularly. Thus you purchase more when the prices are low and purchase less when the prices are high. SIP investments take advantage of this strategy:
The above example is merely an illustration of ‘Rupee Cost Averaging’. The NAVs and returns generated are purely indicative and do not depict the performance of any mutual fund scheme.
In the long term, the SIP investor gains as his investments are unaffected by market volatility.