SIP is the abbreviation of Systematic Investment plan. Out of all the popular Investments among youngsters, SIP is the most chosen one. As the name itself suggests it is a method of investing which consists of investing a particular amount periodically into mutual funds. The period of investing can be adjusted according to your preferences as well as the amount you invest.
- Low initial investment
- Power Of compounding
- Rupee Cost Averaging
- Higher returns
- Financial Discipline
- Emergency Fund
The initial investment that you can start within SIPs is as low as 100 rupees per month and it can be increased anytime you want. There are also services available which aid you in calculating the optimum amount that can be invested in SIPs in relation to your income sources.
SIPs operate on the principle of compounding which is receiving interest in your Investments. It is a simple theoretical concept but the practical applications of this concept are substantial, especially in the long run.
When you keep investing for a long time, your returns on your initial investment get reinvested which increases the actual amount that you have invested. Eventually, The potential returns that you can invest in also grow gigantic.
Thus, early investing in SIPs can result in a corpus fund that exceeds your invested amount by many times.
Rupee Cost Averaging is a wonderful salient feature of these Investments. The concept involves purchasing more investment units when the net asset value is slumping in the market and buying fewer units when the net asset value of the investment is booming in the market. Thus, it averages out your cost of buying a unit over the period of investment and you don’t have to worry about keeping a track of the market.
SIPs can help you earn more than any other traditional investments such as FDs or recurring deposits. It gives you double the money you invested. This can help you beat the ever-rising inflation rates.
Investing a certain amount via SIP will help you become a disciplined investor. This will help you to manage your economics and finances in a more efficient manner. Also, with the automated deduction of the investment amount from your bank account, you do not have to go through the hassle of investing it manually every month.
SIPs are open-ended funds that do not have a fixed tenure and thus provide you with tremendous flexibility. For those who are afraid of long-term investment commitments such as Public Provident Fund (PPF) or Unit Linked Insurance Plans (ULIPs); SIPs are the perfect investment instruments.
To put it simply, you can adjust the amount invested and for the time period, you are investing any time. Also, the money that has already been invested can be withdrawn at any point in time without having to incur any losses. However, one should bear in mind that long-term investments are necessary for wealth creation.
As it is an open-ended fund without any fixed period, you can stop the investment at any point in time and the fund house has no right to interfere with it. Hence, it can also act as an emergency fund to deal with unforeseen situations such as sudden hospitalization or loss of income sources.
Most of the investors do not have the time to go through all the market fluctuations, do research and analysis and make strategies to improve, adjust or balance their portfolio and invest accordingly. So, the obvious answer is to pick a good fund, give the bank a set of protocols and let them take care of your money.
SIP is one of the wonderful tools of investment when it comes to wealth creation. In the long run, even a ten-year head start is capable of creating a colossal difference in the ROI (Return Of Investment). In addition to creating discipline in your financial management, it also has numerous benefits as stated above.