A Systematic Investment Plan or SIP is a smart 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.).
An SIP automates the process of investing by automatically debiting the fixed amount from your bank account and sending it to the Mutual Fund Company. You can stop the service and withdraw your money any time post six months. SIP is a planned approach towards investments and helps you inculcate the habit of saving and building wealth for the future.
Benefits of Systematic Investment Plans:
- Rupee Cost Averaging - With volatile markets, most investors remain baffled about the best time to invest. Rupee-cost averaging allows your money to fetch more units when the price is low and lesser when the price is high.
- Power of Compounding - The rule for compounding is rather straight forward, the sooner you start investing, the more time your money has to grow. For example: If you started investing Rs. 10000 a month when you are 30, in 20 years 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!
- Disciplined Saving - Discipline is the key to success. When you invest through SIP, you save regularly. Every investment gets you closer to your financial objectives.
- Flexibility - While it is advised to continue SIP investments with a long-term perspective, 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 also opt for the facility of auto-debit from your bank account.