In the race between the hare and the tortoise, it was the slow and steady tortoise who won. Though the hare got off to a blazing start, he fell asleep before reaching the finishing line. But the tortoise kept going till he reached the end. He was not deterred by the taunts of the hare.
When it comes to investing for your financial goals, your approach should be like that of the tortoise. Have patience and do not let minor setbacks derail you from your path of wealth creation.
An easy and convenient way to achieve this is by investing in mutual funds through Systematic Investment Plans (SIPs). Just select the mutual fund, decide the amount to be invested and start investing. Since the SIP is linked to your bank account, the money gets credited to your SIP account every month.
Why you should invest through SIPs:
A SIP is a mode of investing in mutual funds of your choice steadily and systematically. It allows you to invest small amounts regularly. It is an ideal way to invest in equities. You can start with as little as Rs 500 and increase the amount as your income goes up or till you become comfortable with the idea of investing in market-linked investments.
Once you set up a SIP in a mutual fund of your choice, a fixed amount gets deducted monthly from your savings bank account on the date chosen by you. The money gets invested automatically in the mutual fund scheme selected by you. This ensures that you are spared tracking the market and its impact on your investment. Since you are investing regularly, essentially the amount is invested at varied price levels.. This in turn reduces the fluctuation in returns.
SIP offers flexibility to increase/decrease the amount. As your salary rises, increase the SIP amount to match it. If at any point in time you are facing a cash crunch, you can reduce the amount, or even stop the SIP temporarily. This offers a complete control over your investments. Each monthly instalment gets added to the earlier one and you earn returns on a higher base each month, generating higher returns.
Benefits of SIP
- An ideal solution to the new dreams: One can plan different life goals be it conventional goals such as children’s future, retirement, international holiday, holiday home, etc or the new age ones which are specific to the age group.
- Convenience for the busy generation: In SIP, a fixed amount gets invested automatically at a fixed interval. One doesn’t need to spend time on a regular basis to put the money to work.
- You decide when, where, how much: SIP allows one to choose the frequency (monthly / quarterly / yearly) the debit date, investment amount, tenor, and one or many schemes to invest.
- Stay worry-free: The biggest benefit of SIP is that you don’t need to worry about timing the markets. Just stay invested irrespective of the market conditions. In doing so, you end up getting more units when the markets are down and fewer units when the markets are on the swing. This in turn leads to a lower average cost per unit over time which is also called as rupee cost averaging.
- Save regularly: The only way to achieve your financial goals is to save regularly. At times, you may get derailed by unexpected expenses. While you cannot avoid emergency expenses, ensure that other planned expenses are met from funds left after your savings. SIP is the best way to ensure this. It brings discipline by automating savings. You can use SIP to save for your emergency fund, to build a buffer for medical expenses and so on.
- Experience the 8th wonder - the power of compounding: With SIP route, one can stay invested for a longer period of time. Over time as your investment generates returns, the returns get added to the principal amount and this in turn generates more returns. This process gets repeated leading to a big corpus. That’s how the magic of compounding works. An investor starting out early can earn much higher returns than a one starting out late even with a slightly higher corpus.