A Systematic Investment Plan (SIP) is an investment vehicle, through which an investor can make fixed, regular payments into an investment asset, to reap the benefits of long-term investing. Similar to a recurring deposit, an investor can invest in SIP by making regular payments to an investment account which then get invested in an asset of the investor’s choice. Most fund houses offer flexibility with respect to the periodicity, the amount invested and the mode of payment. Investors can opt for auto debit facilities that automatically transfer the money to the investment account on a monthly/quarterly basis. An SIP is also commonly known as the “Good EMI” as a regular debit of money results in good savings and investments which can help investors meet their financial goals.
An investor who chooses to invest in SIP can see his money grow, one healthy step at a time. The beauty of an SIP is that an investor can choose to invest as much or as little as he wishes to. An SIP helps an investor:
- Gain exposure to select asset class
- Through the investment of a small or large amount of money
- At regular intervals
- In a disciplined manner
- To reap the benefits of long-term investing
Key benefits of a SIP
The power of compounding: you never thought that you will be using your math lessons from high school again, did you? The power of compounding is basically math at work. The compounding process ensures that both the capital and interest earned from an investment, earn interest, as time passes. Investors who invest in SIP can reap the potential benefits of compounding.
Rupee cost averaging: an SIP entails investing a fixed amount of money in the markets, at regular intervals. This means that we buy when the markets are high and we buy when the markets are low. However, since the amount invested is the same, this also means that we buy less quantity when the markets are high and buy more quantity when the markets are down.
No need to time the markets: we all know and understand that trying to time the market is a redundant exercise. Investing in an SIP takes away the need to time the markets. This is basically done by investing systematically at fixed, regular intervals. This also reduces the impact of volatility and smoothens portfolio returns..
A disciplined approach to investing: SIPs help inculcate discipline into the investment process, as the investor is committed to investing a fixed amount of money, at periodic intervals. When an investor chooses to invest in SIP, he makes a commitment to his financial goals.
A disciplined approach to spending: SIPs also ensure that investors are more judicious about their spending. Since investment in an SIP is a periodic commitment, investors are aware of a fixed outflow that they need to honour. Consequently, this commitment impacts their spending decisions.
Converting goals to reality: a long term, disciplined and systematic approach to investments can help investors realise their financial goals. Often, investors tend to take investment decisions based on market sentiments. Such investments can be susceptible to a higher amount of losses than long-term investments.
Invest in SIP today!
The bottom-line is that SIPs offer investors a flexible and intelligent way to make investments, reap the benefits of long-term investing and achieve their financial goals. So invest in SIP today to get on the path of financial growth and security.