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What you should know about SIPs

Investing in mutual funds online doesn’t have to be daunting and scary. In fact, it is quite easy. One common way of investing in mutual funds is via Systematic Investment Plan or widely known as SIP.

Under the SIP investment method, an individual invests a fixed amount regularly in their desired mutual fund at fixed intervals. The investment amount and the periodicity is pre-determined by the investor before investing in their desired mutual funds via SIP mode. You can invest daily, weekly, monthly, quarterly, semi-annually, bi-annually, or annually. What’s more, you can invest as low as Rs500 per month.

How do SIPs create wealth?

You might be aware of the saying – ‘BoondBoond se sagarbantahai”. SIP investments are based on a similar concept. SIPs accumulate wealth by investing regularly in mutual funds over a period. The returns earned on these investments are re-invested that help to generate greater returns over a stipulated time. This is known as the power of compounding and SIP investments use this principle to generate wealth. Thus, your returns help to earn furthermore returns. With compounding, your securities transform into effective income-generating avenues.

Another reason why SIPs make sense to create wealth is that they offer the benefits of Rupee cost averaging. It means that when you invest in a particular mutual fund periodically, you accumulate units of that mutual fundinvestment at different prices. As you know, equity markets are known for their volatility. Under this approach, you invest a fixed amount regularly in a mutual fund investment, irrespective of the markets going up or down.This ensures that you purchase more units when the markets are low and vice-versa. This brings down the average cost per unit over a period.

SIPs also inculcate a habit of regular investment among investors and thus instils financial discipline amongst them. Since the money gets debited from your account automatically, you learn to save more. This helps you to save money for unforeseen circumstances like a rainy day.

If you are new to investing with a regular income, SIPs can prove to be the best way to invest in mutual funds and achieve your financial goals and objectives. Mutual fund experts often advise their clients to link their SIP investments with long-term goals such as retirement, higher education, etc. This helps the investors to stay focussed on their goals rather than fretting over the market’s volatility and instability. Linking your investments also helps you to stay invested for a longer duration.

You can use an SIP calculator to perceive the value of your investments onthe maturity of your mutual fund scheme. This free online tool is provided by almost all mutual fund houses around the globe.Remember the earlier you start your SIP investments, the more you reap the benefits of compounding. So start investing today. Happy investing!

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