Why it makes sense to start a Systematic Investment Plan

Why it makes sense to start a Systematic Investment Plan

SIP not only helps you create a corpus over a period of time, but also inculcates the habit of saving in you

So you are looking to invest in the stock markets and are wondering how to go about it. Besides, you don’t have the time to track the markets and lack the expertise of managing a portfolio. This is where Systematic Investment Plans offered by mutual funds come in the picture. By investing in mutual funds, you can be rest assured that your money is in the hands of professional fund managers who will help you get adequate returns. 

What is SIP? Popularly called SIP, a Systematic Investment Plan is a financial planning tool that helps you create wealth by investing small sums of your money at a specified frequency (say monthly or quarterly), over a period of time. SIP lets you take a planned approach towards investment and helps you build a corpus for your future. 

SIPs are considered an attractive investment avenue given that you can begin by investing really small sums of money. It is also for this reason that SIP is hugely popular among youngsters who have just started earning. SIP lets you secure your future without putting a financial burden on your present. 

How does SIP work? For young investors and those who are new to the markets, SIP is a great investment vehicle. All you have to do is contribute a fixed sum at regular intervals. You can do this by setting an auto-debit option on your bank account. You can start off by investing as little as Rs 500 or Rs 1,000 every month. As part of the SIP, fund managers then invest this money in the markets and what you get in exchange are units. Each time you invest more money, additional units are purchased at the market rate and added to your account. 

Let us say that you start planning your retirement at the age of 25 by investing Rs 1000 every month. By the time you reach retirement (age 60), your investment of about Rs 4.2 lakhs may have earned you up to Rs 40 lakhs. Now if you start at the age of 30 by investing Rs 1000 every month, your wealth upon retirement will approximately be around Rs 25 lakhs, which is a significant reduction. This means that the earlier you start investing in SIP the more beneficial it will be for you. How to go about investing Anybody can start an SIP irrespective of their age or what stage of their career they are in. However, it makes sense to start investing at an early age so that you can comfortably meet your long-term goals. As mentioned earlier, you can start an SIP with as little as Rs 500 or Rs 1000 per month. This way, you can continue to meet your planned expenses, while simultaneously prepare for the future. SIP not only helps you create a corpus over a period of time, but also inculcates the habit of saving in you. 

No wonder, SIP is considered to be a simple and flexible investment plan. Benefits of SIP -- Shields you from market volatility: The uncertainty and volatility of the stock markets is what makes investors skeptical of investing in them. One of the biggest advantages of SIP is that you need not time the market. The risk associated with timing the market is that you could either enter at a wrong time or stay away when the markets are doing well. However, in the case of SIP, you will be investing every month. This will ensure that you are invested in the markets during the highs and the lows and as a result, can make the best of any opportunity that might have otherwise been tough to predict. This way, SIPs shield you from the volatility in the markets and help in averaging out the costs. This is called Rupee-Cost Averaging. -- Long-term gains and disciplined savings: 

The earlier you start investing in SIP and the longer your investment horizon is, larger will be the benefits. By instilling in you the habit of investing in a disciplined manner on a regular basis, a systematic investment plan helps you meet long-term financial goals. -- Flexibility: Another benefit of opting for SIP is the flexibility that comes with it. If for some reason you want to discontinue the plan, you can go ahead and do it. 

It won’t set you back financially. -- Convenience: You can also increase or decrease the amount that is being invested at regular intervals. This makes SIPs a very convenient mode of investment. 

Start investing now With SIP, you can stay invested in the markets for longer periods without having to worry about fluctuations. If you are patient and disciplined enough, your investments will steadily grow over a period of time and you will be able to meet your financial goals. 

The earlier you start, the better it will be for your finances. So start your SIP now.


Happy Investing

Source:Moneycontrol.com