What is SIP?
You might have heard: Little drops of water make a mighty ocean, SIP also works on the same principle. A Systematic Investment Plan is commonly known as SIP where the investor invests a fixed amount – which can be as small as Rs 500- at regular intervals of time in a mutual fund scheme. For generating wealth SIP is a great tool.
Benefits of SIP investing
Through SIP route, a fixed amount of money is deducted from your bank account. SIP establishes a habit of regular investing a certain sum of money which you would have otherwise spent. This will slowly help the investor realize the returns later.
Don’t forget to check: Advantages and Disadvantages of Mutual Funds
Rupee cost averaging
Rupee cost averaging is one of the biggest advantages of investing through SIPs. One of the strategies that gives good returns is “buy when the markets are low and sell when the markets are high.” But how can one know when the markets have hit the lowest point? It is not easy to know this. So, rupee cost averaging approach should be adopted.
SIP investing happens both at the highs and lows of the market as every month the NAV is different. Whereas in lumpsum investing there is a risk of entering the market at a high. When the NAV is higher, SIP investment will purchase less units of a mutual fund while when the NAV is lower, more mutual fund units will be purchased from the same SIP investment. SIP investing helps in managing the anxiety of the investors.
Start with a small amount
With SIP one can start investing with as low as Rs500 a month. If your earnings are not very high or even if your savings are low, one can still actively invest in equities through SIP route in mutual funds.
Power of compounding
It is referred to as the eighth wonder of the world. Monthly returns derived from SIP will be reinvested in the same scheme. Hence, the lengthier your investment horizon, the more you earn. Your money creates more money through the SIP route. Let’s look at the example below to understand this better.
It is true that an investor should continue their SIP investments for a long time to gain better returns, however, it is not mandatory. Investors can choose to stop their SIPs at any given time of their investment cycle. Also, there is an option to increase/decrease the amount of your SIPs. SIP also allows you to skip a month without any charges, unlike FDs.
Growing your wealth is also about consistent investments. SIP benefits ensure that as time passes, your money grows. Start your first SIP with Elevo powered by tarrakki.
You can also read: How Can Minors Invest In Mutual Funds?