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Why You Can’t Go Wrong with the SIP Method of Investing

ICICI Securities 24 Aug 2021 0 COMMENT

Introduction

We all have milestones we wish to achieve in life. These could range from wanting to go on a holiday, buying a new phone, saving for a new vehicle and even retirement. To help you meet every financial goal, consider investing in mutual funds through Systematic Investment Plans (SIPs).

Why SIP matters

A SIP is a convenient tool that allows you to invest in mutual funds schemes. Just like tiny drops of water make an ocean, your steady and regular investments can help you build an extensive and stable portfolio eventually. 

For instance, if you begin to invest Rs 5000 every month for ten years, at a 12% expected return rate, your SIP investment's future value could be Rs 11.5 lakhs!

Hence, regardless of how little your savings may be, you can take advantage of SIP to grow them considerably over a long period.

SIPs can be an ideal choice for you because:

  • You can invest with an amount as little as Rs 100.

  • It can make you a disciplined investor.

  • It can prevent you from timing the market.

  • It can help you develop a substantial corpus slowly.

  • It can help you tackle market volatility by taking advantage of both the highs and lows of the market.

  • It can balance your overall risk through rupee cost averaging.

  • It can subject your returns to the power of compounding with the potential of earning high growth.

  • It's a regular habit of investing that ensures you keep emotions at bay and do not succumb to the panic of short-term market volatility.

Additional read: 7 things new Mutual Fund investors need to know

Learning discipline with SIP

Say, you may be tempted to cash in on market fluctuations that could be risky. This is where SIP comes into the picture, as it lays down a disciplined approach to your investing. 

One way to benefit from SIP is to provide your investing approach with discipline. Through the SIP mode, you can invest as little as Rs 100 in a mutual fund scheme depending on a pre-specified interval. You can purchase fund units based on the scheme's prevailing Net Asset Value [NAV] with every instalment. Moreover, investing via the SIP route can also help you average out the cost of your investment over a specific time.

Your SIP route of investing can also protect you from timing the equity markets and, at the same time, saving efforts of regularly tracking the market as expert fund managers handle your investment. Eventually, the amount of time you spend staying invested in the market is far more important than timing the market.

Additional read: Lumpsum vs SIP: Know the advantages

 

Rupee cost averaging 

When you invest a specified amount of money at regular intervals through the SIP method, you benefit from a feature known as rupee cost averaging. 

It essentially means that through SIP, you get to buy more shares of a fund scheme when its unit price is low and fewer units when prices are high. So, when investing through the SIP method, you escape the doubtful and even uncontrollable task of deciding the best time to invest. 

The effect of rupee cost averaging averages your fund scheme units' cost and helps reduce the impact of short-term market volatility on your investments. 

Through your Systematic Investment Plan [SIP], you can weather volatility, avoid timing the market and bring down your purchase cost, thus helping to enhance your returns.

SIP works well in the long run, ideally over 10-15 years. A lengthy time frame ensures that the market goes through many cycles, thus helping your investment gain from the ups and downs of the market.

All you need to do is choose a suitable mutual fund scheme with a good track record and invest in it steadily with a long-term strategy in mind through SIPs.

Unleash compounding magic

Continuing with your SIP plans over an extended period can add another significant benefit to your money - the power of compounding. The theory of compounding interest simply means that your investments begin to earn interest on the interest you receive that grows your money at an accelerating rate.

Therefore, the longer you spend time staying invested, the more your money accumulates and Multiplies, subject to market growth and returns.

Additional read: Why you should use a Systematic Investment Plan (SIP)

Conclusion

Just as the passage of a thousand miles begins with a single step, choosing the SIP route can be your very first step in your journey to reach your financial goal. 

Opting for a SIP is easy on your wallet as you do not have to spend a lump sum at one time. Besides, it can help in forming a disciplined habit and help you ride market volatility. Anytime is a good time to start a SIP.