SIP Mutual Fund

Why should we invest in Systematic Investment Plans (SIP) ?

by Elearnmarkets on Basic Finance
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DID YOU KNOW?

If your current monthly expenses are Rs 30,000 p.m, after 20 years you will require Rs 80,000 p.m, to maintain the same lifestyle?

Also ReadHow Does Power of Compounding Work

DID YOU KNOW?

An education degree for your child which currently costs Rs 10 lac will cost Rs 21 lac after 15 years.

 INDIVIDUAL INVESTOR NEEDS: INVESTMENT GOALS

All individuals need to save for

  • Retirement
  • Child’s education/marriage
  • Medical emergency
  • Other family obligation

Every individual has one or more of the above financial goals.

Individual investors are scared of

  • the downside RISK in equity
  • the RISK of market volatility
  • the RISK of market timing

THEN HOW DO YOU ACHIEVE YOUR FINANCIAL GOALS ?

SYSTEMATIC INVESTMENT PLAN in Mutual Fund (commonly named SIP) is such a beautiful tool, which if used properly can help you to achieve all your financial goals.

A SIP could prove to be a simple and effective solution towards achieving these goals.

Know MoreMutual Fund Systematic Transfer Plan (STP) vs Lump Sum – Which option to choose?

WHAT IS A SYSTEMATIC INVESTMENT PLAN?

A SIP is a method of investing in mutual funds where a specific amount will be invested for a chosen period at regular intervals (weekly, monthly, quarterly etc) to buy units of a mutual fund scheme.

A SIP is a planned approach for accumulating wealth in a disciplined manner over a long period.

An investor can start a SIP with as low as Rs 500.

Watch the video below to know how to make money from investing in a mutual fund:


HOW DOES SIP WORK?

Your money is auto-debited from your bank account and invested into a specific mutual fund scheme.

You are allocated a certain number of units based on the ongoing market rate (called NAV or net asset value) for the day.

Every time you invest money, additional units of the scheme are purchased at the market rate and added to your account.

Read More:  What Would Your Boss Expect You To Know About Meaning of Net Asset Value (NAV)?

Want to know more about mutual funds? Enroll in NSE Academy Certified Financial Planning & Wealth Management course on Elearnmarkets.

WHY SYSTEMATIC INVESTMENT PLAN?

Here units are bought at different rates and investors get benefit from Rupee-Cost Averaging and the Power of Compounding.

One main benefit of investing through the SIP is Rupee-Cost Averaging.

When you invest at regular intervals, your money fetches more units when the price is low and lesser when the price is high.

During volatile period, a lower average cost per unit is achieved based on the different NAV’s.

Let us see this with a small example.

DATENAVAMOUNT INVESTED(RS)UNITS
07-April-1815100067
07-May-1813100077
TOTAL2000144

The average rate at which the investment is made is at Rs 14.

Hence units get accumulated at different market levels.

If the NAV during the end of May is Rs 17, then the value of Rs 2000 investment will be worth Rs 2,448 (144 units * Rs 17).

If a person had considered bulk investing and invested Rs 2000 on April 07, the investment will be worth only Rs 2,266 ( 2000/15 * Rs 17).

The early bird gets the worm is not just a part of the jungle folklore.

Even the “early investor” gets a lion’s share of the investment booty vis-a-vis the investor who comes in later.

This is mainly due to the power of Compounding.

Know MoreHow Does Power of Compounding Work

The rule for compounding is simple, the sooner you start investing, the more time your money has to grow.

For example,

If you started investing Rs 10,000 a month on your 40th birthday, in 20 years time 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 10,000 each month would add up to Rs 36 lakhs over 30 years.

Assuming the same average annual growth of 7%, you would have Rs 1.22 cr on your 60th birthday—more than double the amount you would have reached if you had started ten years later.

SO, WHAT ARE THE BENEFITS OF INVESTING THROUGH A SIP?

  • DISCIPLINED SAVING

Discipline is the key to successful investments.

When you invest through SIP, you commit yourself to save regularly.

Every investment is a step towards attaining your financial objectives.

  • FLEXIBILITY

You can choose from a wide array of schemes.

You can decide to keep invested amounts in an earlier scheme and invest future SIP installments into a new scheme.

You can also increase or decrease the amount being invested.

  • LONG-TERM GAINS

Due to rupee-cost averaging and the power of compounding SIP’s have the potential to deliver attractive returns over a long investment horizon.

  • CONVENIENCE

SIP is a hassle-free mode of investment.

You can issue a standing instruction to your bank to facilitate auto-debits from your bank account.

Top 15 Best Mutual Funds SIPs to invest in india in 2018

Bottomline:

SIP will work if the following acts are done:

  • Start Early
  • Invest Regularly
  • Invest for Long Term
  • Invest in the right asset class.

MAKE YOUR INVESTMENT GOALS A REALITY.

START A SIP TODAY!!

A Rupee Saved is a Rupee Earned.

A long journey begins with a small step.


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Disclaimer

Elearnmarkets.com wants to remind you that all our content is created solely for the purpose of education. No strategy, stock, commodity, fund or any other security discussed here is any way a recommendation for trading or investing. Elearnmarkets.com will not be any way responsible for trading losses incurred by any individual or entity for trading with real money. Please take advise of certified financial advisers before trading or investing.

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