SIPs - The way to financial freedom

SIPs - The way to financial freedom

Investing in mutual funds via the SIP (Systematic Investment Plan) route is considered the best way of achieving financial freedom over a period of time. SIPs provide better returns at lower risk than other investment options.

What exactly is meant by SIP or Systematic Investment Plan?

SIP or Systematic Investment Plan is a hassle free and smart method of investing money into mutual funds. Using this method, you can invest a specific predetermined amount of money at regular intervals (ideally monthly, but can also be quarterly, weekly etc.).

Please note, SIP is not a type of financial instrument, but simply a method of investing money in mutual funds. People often confuse SIPs with mutual funds, National Savings Certificates, Public Provident Fund etc. They often talk about investing in SIPs, which is not correct. SIP is simply a planned approach towards making investments and helps in adopting the habit of saving money and building wealth over a period of time.

Following are the different ways in which SIPs help in accomplishment of financial freedom:

Rupee cost averaging

SIPs safeguard you from the knee jerk reactions caused by investment sell-offs during the bearish market movements. Thus you’re able to realise the full value of your investments.

The positives of investing through SIPs become quite evident in the times of market fluctuations. Any time there’s a drop in the mutual fund’s net asset value (NAV) during an economic downturn, the SIP instalment credits more number of mutual fund units to the investor. The opposite happens whenever there’s a spike in the net asset value. On the whole the average cost per unit works out to be lesser than the average price per unit.

Convenient mode of investment

Normally, SIPs involve investment of a small sum of money each month. Hence SIPs are far more convenient mode of investment than other investment options that may require lump sum deposits at the outset. SIPs are the ideal investment option for people who struggle with tight monthly budgets and all sorts of EMIs. Normally, these people can’t ever think of achieving financial freedom as they’re heavily mired in all such expenses. SIPs help them in making small-small investments each month, ensuring that they save enough amount of money over a period of time.

Doing away with the need of market timing

There’s no one out there who has successfully and consistently benefited from the myriad of market timing techniques. Market fluctuations are often the biggest deterrent for long-time investors. Considering the kind of investment experience majority of investors have, they can never aspire to become the best seller or the best buyer either. Furthermore, timing the market movements is a highly risky and time-consuming affair. It requires a lot of skills, and even then there’s no guarantee of accuracy. As a result, investors lose out on making the most of the market opportunities.

In case of SIPs you never have to worry about the market movements. All you need to do is identify the right type of fund/s for your needs and keep investing money on a regular basis. Whatever be the market movements, you’re almost guaranteed to save a good amount of money few years down the line.

Final word

Just like the small-small drops of water make an entire ocean, small yet regular investments via SIPs can be very instrumental in helping you earn your financial freedom.

Happy Investing