What is a Systematic Investment Plan?
Systematic Investment Plan or SIP
is a smart and hassle free mode for investing money in mutual funds. SIP allows
you to invest a certain pre-determined amount at a regular interval (weekly,
monthly, quarterly, etc.). A SIP is a planned approach towards investments and
helps you inculcate the habit of saving and building wealth for the future.
How does it work?
A SIP is a flexible and easy
investment plan. Your money is auto-debited from your bank account and invested
into a specific mutual fund scheme. You are allocated certain number of units
based on the ongoing market rate (called NAV or net asset value) for the day.
Every time you invest money, additional units
of the scheme are purchased at the market rate and added to your account.
Hence, units are bought at different rates and investors benefit from
Rupee-Cost Averaging and the Power of Compounding.
Rupee-Cost Averaging
With volatile markets, most investors
remain skeptical about the best time to invest and try to 'time' their entry
into the market. Rupee-cost averaging allows you to opt out of the guessing
game. Since you are a regular investor, your money fetches more units when the
price is low and lesser when the price is high. During volatile period, it may
allow you to achieve a lower average cost per unit.
Power of Compounding
Albert Einstein once said,
"Compound interest is the eighth wonder of the world. He who understands
it, earns it... he who doesn't... pays it." The rule for compounding is
simple - the sooner you start investing, the more time your money has to grow.
Example
If you started investing Rs. 10000
a month on your 40th birthday, in 20 years’ time you would have put aside Rs.
24 lakhs. If that investment grew by an average of 7% a year, it would be worth
Rs. 52.4 lakhs when you reach 60.
However, if you started investing
10 years earlier, your Rs. 10000 each month would add up to Rs. 36 lakh over 30
years. Assuming the same average annual growth of 7%, you would have Rs. 1.22
Cr on your 60th birthday - more than double the amount you would have received
if you had started ten years later!
Other Benefits of Systematic Investment Plans
Disciplined Saving - Discipline
is the key to successful investments. When you invest through SIP, you commit
yourself to save regularly. Every investment is a step towards attaining your
financial objectives.
Flexibility - While it
is advisable to continue SIP investments with a long-term perspective, there is
no compulsion. Investors can discontinue the plan at any time. One can also
increase/ decrease the amount being invested.
Long-Term Gains - Due to
rupee-cost averaging and the power of compounding SIPs have the potential to
deliver attractive returns over a long investment horizon.
Convenience - SIP is a
hassle-free mode of investment. You can issue a standing instruction to your
bank to facilitate auto-debits from your bank account.
SIPs have proved to be an ideal
mode of investment for retail investors who do not have the resources to pursue
active investments.
Please
contact to learn more about Systematic Investment Plans and to start saving
today!
