Systematic Investment Plan or SIP as it is familiarly acknowledged is an investment vehicle that allows individuals to stay committed to their mutual fund investments. SIP is an electronic transaction act where the money is debited from one’s bank account and transferred it to their mutual fund on a fixed date every month. The SIP amount is predetermined as decided by the mutual fund holder.
It is better that you realize the importance of investing early in life so that you are able to make most out your investments through tools like SIP.
Here are seven reasons to start a SIP investment early in one’s life:
- Disciplinary approach: More often, you see financial product advertisers talking about potential returns and profit maximization. But the main reason to be successful with your investments it is essential that you inculcate the discipline of investing regularly. There is no time such as the right time for investment, and hence, it is advisable that you start investing in equity mutual funds via SIP. One doesn’t need to follow market trends and can regularly invest for long term gains.
- Power of compounding: Compounding in mutual funds means interest earned on your principal amount being reinvested in the original amount, which acts as the principal amount for your next investment cycle. If you start investing in mutual funds via SIP at an early stage, you have the opportunity to witness a small investment build into a commendable corpus.
- Cost per averaging: Another advantage SIP investments hold is that they have the power to benefit from the market’s volatile nature. When the market goes down, the NAV of the fund invested goes, resulting in more number of units being added to the unit holder’s account. When the market goes up, this results in an increase in the NAV of the fund. This way, the market value of your allotted units increases as well.
- Time is your best friend: A lot of investors feel bad that they realized the importance of investing at a much later stage in their lives. And it is this one mistake that you must never repeat. That’s because the early you start investing via SIP, the more chances you have of accumulating a wealthier corpus.
- SIPs do not pinch your pocket: You can start investing in an equity mutual fund through SIP with an amount as low as Rs. 500 per month. So you can invest an amount which you can afford per month as compared to paying in lump sums. SIPs sync well with an income earner’s monthly cash inflow, and you know how much portion is being allotted to your mutual funds at regular intervals.
- SIPs are ideal for meeting long term goals: If you are investing in equity, make sure that you set a long term investment goal. That’s because historically, investments made in equity oriented schemes like equity mutual funds tend to perform better when remained invested for the long run. So it is advisable that you invest in equity funds through SIP to meet long term goals like building a retirement corpus or saving for your child’s education / future, etc.
- SIP helps you set realistic goals: Once you begin investing regularly, you have a more realistic approach towards financial planning. You understand the number of years you have in hand to continue investing, and the amount of money you afford can regularly invest as per your risk appetite. You can also use an online SIP calculator to understand how potentially your SIP investments can grow over time.
SIP is the most disciplinary approach an investor can give to his / her investments. So if you too wish to see your small investments grow into a decent corpus, start investing early in equity funds via SIP.