You earn regularly
You spend regularly
But, do you invest regularly?
If your answer is NO, go for “SIP”.
“A rupee a day, keeps worries away.”
Wealth Creation is the Outcome of a Simple Step towards Systematic Investment and is the winning bet for the long term. And the strategy of Cost Averaging calls for regular investments. You only need to keep investing in a disciplined manner, and you would reap the benefits in the long term. If only it was so simple!! Most of us lack the discipline to follow this and therefore, most of us don't make good profits from stocks!!
But there is a tool available that can make this really easy for you - and that is Systematic Investment Plans (SIPs) offered by Mutual Funds (MFs) for almost all of their schemes.
Wealth creation out of capital market can be very tough and time-consuming task. The people who earn through capital markets have to give too much of time to understand its every aspect. But with mutual funds, investing in capital market has become all the more simpler and less risky. If followed systematically it also lead to wealth creation. Capital markets are made up of a lot of different investors who participate in it. There are large institutions, such as fund houses, as well as companies, brokers and individual investors.
When you invest in MF, you buy the units of a fund; you may do so when the NAV is really high. For instance, let's say you bought the units of a fund when the market is at its peak, leading to a high NAV. If the market dips after that, the value of your investments falls and you may have to wait for a long
while to make a return on your investment. But, if you invest through a SIP, you do not commit the mistake of buying units when the market is at its peak. Since you are buying small amounts continuously, your investment will average out over a period of time. Investing on a regular basis removes the stress of “timing the market” because you are employing the concept of “Rupee Cost Averaging”. If you are an investor in mutual funds it means that you buy more units when the purchase price is low and fewer units when the purchase price is high. The trick to all this is to remember that it’s not the price you pay for each unit that matters. It’s the average price per unit over time that determines your overall return. This will be lower than the cost accrued to lump sum investment.
SIP facilitates you to invest monthly, quarterly or once in six months. Similarly investor can avoid timing the market by withdrawing constant amounts periodically (Systematic Withdrawal Plan), or systematically transferring investment between different schemes (Systematic Transfer Plan).
Advantages of SIPs
- Remove the element of timing the market from investing
- Reduce the average cost of acquisition
- Diversify the risk.
Apart from these, there are other great benefits:
- No Discipline needed on your shoulder once you choose the scheme, give the cheques / opt for ECS.You don't need to remember anything - the MFdoes it for you!
- Compulsory Saving as you make a commitment to make a certain investment every month. With SIPs, you end up investing (and thus, saving) every month.
- Very low monthly investment possible: SIPs can be started for amounts as small as Rs. 100 per month!! This limit is far lower than the limit for one time, lump sum investment. So, whatever your capacity to invest, you can invest using SIPs.
- Favorable entry load: Some MF houses have favorable entry loads for SIPs - they either charge less entry load, or charge no entry load at all. This results in substantial savings in the long term.
In October 2008 when stock markets were in corrective mode, we have witnessed the height of pessimism. Nobody was willing to invest; even those who were doing SIP had a thought of discontinuing it. Some did it also. From October till results of general elections, markets surged almost 45%. Pre results most retail investors took exit from equity markets anticipating the fractured mandate and rest is the history. Markets for the first time in the history closed at upper circuit of 20%.
In the current scenario retail investors are thinking that they have missed the bus. This is where the magic of disciplined investment through SIP works. Those who would have stayed invested would have reaped the benefits of long-term investment and would have encashed such event based appreciation also. There are lots of Schemes available in the market but for choosing a good scheme you should consult your financial advisor.
“The future belongs to those who give the next generation a reason for hope.”
So start SIP today. In time, it will help achieve your financial goals and realize your dreams.
Disclaimer: The content in this information is for general and informational purpose.
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