Most of the first-timers in the investing community get less than optimal returns. There are various reasons to it. Not everyone can time the market. In addition, most investors are not disciplined enough and make irregular investments which result in less than optimal returns. Of late, the trend of investing in SIP is catching on. So,
What is a Systematic Investment Plan (SIP)?
A Systematic Investment Plan ( SIP ) is a disciplined and hassle free approach to investing into mutual funds. An SIP is an automated way of investing pre-determined amount at regular intervals into mutual funds without worrying about timing the market, being disciplined etc. If you’re a salaried employee with fixed income every month, an SIP is the way to go.
SIP is a very flexible and easy investment plan that doesn’t take a lot of your time into researching. Once an SIP starts, you need not worry about when to invest, where to invest and how much to invest.
Your money is auto-debited from the bank account at a regular intervals (weekly, monthly, quarterly etc.) and invested into a specific mutual fund which you chose at the start. Depending on the market rates, you are allotted certain number of units of the MF at on-going market rate. At every interval, additional units are added to your folio.
An SIP provides the following benefits:
- Rupee-Cost Averaging
- Power of Compounding
- Disciplined Saving
- Long-term Gains
With markets being volatile, most investors remain confused about when to invest and how to time their investments. With SIP, you have the benefit of rupee cost averaging. Rupee-cost averaging allows you to opt out of guessing the market. As you invest equal amounts of money into SIP without worrying about market, you fetch more units when the price is low and less units when the price is high. This may give SIPs a lower average rupee-cost per unit during volatile periods.
Power of Compounding
An SIP takes the advantage of the power of compounding. While other modes of investing also have compounding into effect, SIP is also benefitted by it. The rule of compounding is very easy – the earlier you start investing, the more your money grows (assuming upwards growth trend). As you are disciplined in your investments in an SIP, you take the advantage of the power of compounding very well.
One cannot reiterate the importance of discipline in successful investment strategy. Investment discipline is the key to successful investment returns. In an SIP, you commit yourself to save regularly and gives high discipline to your investments. When you invest through SIP, you commit yourself to save regularly. Being disciplined means you invest diligently and not missing investment due to other expenses.
Disciplined Savings are the key to riches!!
An SIP is very flexible. You can discontinue your SIP at any time. You can alter it to increase/decrease the investment amount. That said, our sincere advice is to not discontinue your SIP at any time. The only reason you would want to discontinue an SIP is to start another one for another mutual fund scheme or to rebalance your portfolio. SIP investments need to be done with long-term perspective.
Over a long investment horizon, SIPs have great potential to return attractive returns due to rupee-cost averaging and the power of compounding. Especially in volatile markets, SIPs are very very valuable. SIPs have the potential to deliver attractive returns over a long investment horizon.
|Scheme:||DSP BR Micro Cap Fund – Reg – Gr|
|Monthly Investment:||Rs. 10,000.00|
|Total Investment:||Rs. 940,000.00|
|Current Value: (as on 12-Aug-2016)||Rs. 3,141,968.02|
|Total Units Purchased:||63583.2849|
|Return on Investment: (XIRR%)
* Return does not include Entry Load & Exit Load
|SIP Calculator – Purchase Schedule|
|SIP Date||SIP Amount (Rs)||Purchase Price (Rs)||Units Purchased|
SIP is a hassle-free method of investment. You don’t need to worry about when and how much to invest. You don’t need to take any action to invest every time. You can issue a standing instruction to your bank and from then on, the amount gets auto-debited from your bank account.
SIP is the way to go for first-time users who are not very active and would like to invest wisely.