How one should start

 

How one should start

 

 

Among the many mantras of investing, market timing is the most commonly used one, where investors look to invest, book profits and exit quite often. There are also diehard followers of the "invest and hold" strategy. At the same time there are people who believe that portfolio rebalancing across asset classes such as equity and debt is a must. There are several theories of investing, retail investors are better off by simply investing consistently. As it is believed that since no one can time the markets consistently, there is no point in chasing this strategy. One should look for the cost averaging theory, popularly known as systematic investment plan (SIP).

 

Systematic Investment Plan (SIP) is a smart financial planning tool that helps you build wealth, step by step, over a period of time. You can start an SIP for Rs. 2500 per month and benefit from the power of compounding and rupee-cost averaging. This disciplined approach helps you to hedge the investment against inflation.

 

BENEFITS OF SIP

 

1. Disciplined Investing approach: Some of you may opt for stock options by timing the market to accrue wealth. However, timing the market calls for market knowledge, research, technical analysis and a lot of time from your end. Further it could also be risky. But through disciplined, regular investments you can stop worrying about when and how much to invest. In a way, it eliminates the need to actively tracking the market. And SIP helps you to achieve just that.

 

2. Takes advantage of Rupee Cost Averaging: Rupee Cost Averaging is an effective investment strategy that eliminates the need to time the market. All one has to do is to invest a fixed pre decided amount of money on a regular basis for a long period of time. Since the amount invested is constant one buys more units when the price is low and fewer units when the price is high which may man a lower average cost.

 

3. Simple, convenient and easy to monitor: You do not have to take time from your schedule to make your investments. With a completed application form, one can just submit post-dated cheques or avail the Magnum Easy Pay (auto debit) ** facility and relax. You can monitor your progress of investment through periodic statement of accounts.

 

4. Benefits of Compounding: The key to building wealth is to start investing early and to keep investing regularly. A small amount of money invested regularly can grow to a large sum. This helps in creating a substantial amount of wealth which includes your own contribution, plus returns compounded over the years. For example, the following graph demonstrates the effect of returns on monthly investments of `1000 per month for a period of 30 years.

 

 

 

5. Power of starting early:Helps create wealth: The earlier one starts regular savings, the easier it is for wealth creation. The graph below shows the impact of starting at various stages in life. `1000 was invested on a monthly basis till the retirement age of 60 years. The rate of return on investment was assumed at 10% p.a. It can be seen that even a five-year delay can make a significant reduction in overall creation of wealth.

 

 

 

 

 

 

SECRETS OF WEALTH CREATION

 

  Plan your SIP Investments. Frequent Intervals i.e. monthly, quarterly or semiannually increase chances of buying units when prices are low.

Chart out a long-term investment plan. SIP works best for long-term investment periods and helps the long-term investor reap good returns over a period of time. Long-term investors tend to profit from the appreciation markets tend to show in the long-term.

Diversify your investments. Since, Mutual Fund investments are diversified; it not only reduces risk but also helps in optimizing returns.

Happy Investing