An investor tracking SIP investments on a mobile app, illustrating disciplined wealth-building through Systematic Investment Plans (Photo: Pinterest)
Investing when done in a systematic and disciplined way, shows its results in the long term. In India, one of the most celebrated long-term investment patterns is the Systematic Investment Plan referred to as SIP. It serves as the gateway to wealth building in a low-risk and accessible manner for all investors whether novice or seasoned without the pressure of timing the market.
A SIP is systematic investment in set amounts in mutual funds at periodic intervals, i.e., weekly, monthly or quarterly instead of investing one lump sum, the investor gradually brings in little amounts, which will make wealth accumulation easy, manageable and less tiresome. SIPs give anyone a chance to stake with a lower sum, starting from Rs. 100 not to mention ease and flexibility.
SIP is a simple but very powerfully investor-oriented mechanism where investors choose a mutual fund scheme and settle on an amount to purchase periodically. This amount is automatically debited from the investor's bank account, which buys units of the mutual fund over a period these units grow when there is a long-term appreciation in the market.
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Compounding is the ability of investment returns to generate their own returns and SIPs exploit this possibility because the returns keep getting reinvested. The longer the investment, the bigger the compounding effect makes quite small sums of money into a pretty large amount over time.
The term Rupee Cost Averaging implies buying mutual fund units at different prices over time when the market goes down where your fixed amount of investment buys more units and when the market is up, it buys fewer units. This lowers the average cost per unit of investment so that the overall volatility of the market affects less the returns on such an investment.
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SIPs are best suited for individuals who would like to steadily increase their wealth without falling prey to sudden market risks and they also act as a way of balancing investments in equity with risk through regulated contributions. Individuals with long-term goals such as buying a house or children's and education or retirement will find SIPs instrumental in their transformation from mere aspirations to deliverables.
Setting up an SIP is easy. Investors can opt for net banking or mobile banking platforms of their respective banks or mutual fund websites. After selecting a fund, the investor will set the amount, frequency & tenure for investment. The process is almost paperless and it would take a few minutes to set investment is ensured through auto-debit, i.e. it is done without any hassle.
SIPs come in different variants to meet the different needs of each individual:
Disclaimer: Information provided is for educational purposes only. Investment returns may vary based on market conditions and individual choices.
