- April 30, 2018
- Posted by: moat_admin
- Category: Mutual Funds
You might have heard the term ‘SIP’ gaining popularity steadily in the recent years. But, there are many unaware of what it means and what advantages it offers. You might also have heard wealth accumulation and success stories, but little do we know the WHAT? WHY? And HOW? Of SIP.
Firstly, let us understand…
WHAT is an SIP?
SIP refers to Systematic Investment Plan.
An SIP is a planned and regular approach towards investment into mutual funds. Its motive is to inculcate the habit of saving and building wealth for the future. Investments can be done at regular intervals like monthly, quarterly, etc.
Investing through SIPs is a very smart, hassle free and flexible approach towards DISCIPLINED Investing.
WHY is SIP a Clever Alternative?
Investing small through SIPs can help you achieve big goals in the long term. Since, One who fails to plan, Plans to fail. Here’s how they are beneficial:
- Encourages Regular Investment:
Investing through SIP helps to save small amounts at regular intervals without feeling the pinch since SIP amounts are auto debited usually from bank accounts. All these systematic, disciplined and regular saving piles up into a great corpus and can help achieve goals easily. Systematic investing is a time-tested discipline that makes it easy to invest automatically. Investing regularly in small amounts can often lead to better results than investing in a lump sum.
- Rupee Cost Averaging:
Every common man understands while buying a commodity, buy when the price comes down and sell when price goes up. But when the decision comes to investing in equity we do exactly the opposite.
“What we have learned from history is that, we don’t learn from history” ~unknown
A SIP investor, while investing every month would end up buying more units when markets go down and buying less units when market goes up. Understand better from the following illustration:
- Power of saving:
The power of saving underlines the essence of making money work if only invested at an early age. The longer one delays in investing, the greater the financial burden to meet desired goals. Saving a small sum of money regularly at an early age makes money work with significant impact on wealth accumulation.
- Can be started with small amounts:
It is not necessary to invest large sums into SIPs. An amount starting from as small as Rs. 500 can be started with. There are myths that to invest into SIPs people need a corpus but that is just not true.
- Power of Compounding:
Albert Einstein is quoted as saying, “The most powerful force in the universe is compound interest.” Compound returns offer one of the most powerful ways to build wealth. Compounding means earning interest on interest. Over time, the more interest (or returns) you reinvest, the more money you have working for you, and the more you can earn. Understand the following illustration:
- Remember, planning now for the future saving little amounts and investing the same makes more sense than just living a financially unplanned life further.
As, “Each Drop makes the Mighty Ocean” likewise, starting to invest bit by bit can be a roadway to building a financially secure life leaving one with a great Corpus.
Contributed by Divya Syontri from Moat Wealth Advisors