We all have heard of the saying “Little drops of water make the mighty ocean”. Just like little drops of water can make the mighty ocean in the long run, a Systematic Investment Plan (SIP) makes you reach your long term investment goals conveniently. SIP is a simple yet a powerful tool used by investors worldwide as a method for savings and wealth accumulation. Investing through the SIP facility empowers you to plan and save for your future by inculcating in you the discipline of investing regularly.
In order to invest in a mutual fund via SIP, a pre-decided amount of money is debited from an investor's bank account, by way of post-dated cheques or ECS mandate, for the purchase of units of a desired mutual fund scheme. An investor has the flexibility of purchasing mutual funds units on a quarterly, monthly, weekly or daily basis, hence helping one to build wealth in the long run.
SIP investment is very advantageous. Investing a hefty sum at one go is not a feasible option for most of the people, but investing small amounts of money at regular durations is not a bad idea for anyone. This also lets the compounding principle work on it. For instance, if Mr. X invests Rs. 1200000 lumpsum for 10 years and Mr. Y invests Rs. 5000 by way of SIP for 20 years, and if the rate of return is 15% p.a., then Mr. Y will earn Rs. 2600000 more than Mr. X.
Another principle working on it is that of rupee cost averaging that is an automatic market timing mechanism. Rupee cost averaging enables an inevstor to purchase more number of units when they are low-priced and buy lesser number of units when they are high-priced. This proves quite beneficial later on.
SIP also enable the mutual fund investors to benefit from diversification. Mutual funds returns are variable and are affected by numerous market risks. Diversification helps in lowering the overall affect on a portfolio's return.
So go ahead and start taking small steps. You will definitely reach your long term objectives.
In order to invest in a mutual fund via SIP, a pre-decided amount of money is debited from an investor's bank account, by way of post-dated cheques or ECS mandate, for the purchase of units of a desired mutual fund scheme. An investor has the flexibility of purchasing mutual funds units on a quarterly, monthly, weekly or daily basis, hence helping one to build wealth in the long run.
SIP investment is very advantageous. Investing a hefty sum at one go is not a feasible option for most of the people, but investing small amounts of money at regular durations is not a bad idea for anyone. This also lets the compounding principle work on it. For instance, if Mr. X invests Rs. 1200000 lumpsum for 10 years and Mr. Y invests Rs. 5000 by way of SIP for 20 years, and if the rate of return is 15% p.a., then Mr. Y will earn Rs. 2600000 more than Mr. X.
Another principle working on it is that of rupee cost averaging that is an automatic market timing mechanism. Rupee cost averaging enables an inevstor to purchase more number of units when they are low-priced and buy lesser number of units when they are high-priced. This proves quite beneficial later on.
SIP also enable the mutual fund investors to benefit from diversification. Mutual funds returns are variable and are affected by numerous market risks. Diversification helps in lowering the overall affect on a portfolio's return.
So go ahead and start taking small steps. You will definitely reach your long term objectives.
5 comments:
Rupee Cost averaging: If you wanted to buy units of a mutual fund you end up purchasing more units when the net asset values of the units are down, and vice versa. Here, it is the average purchase price that matters and not the purchase price of one unit as you will keep on purchasing each month on a particular date.
Power of compounding: It refers to returns earned on the principal as well as the interest amount unlike simple interest where you earn returns only on the principal amount. It also rewards investing at regular intervals and works best over long tenures.
Sir I invested a big amount in single plan now i understood Systematic investment plan. I am going to separate the amount and invest in mutual fund thanks for the information.....
Thanks for sharing this great article! That is very interesting I love reading and I am always searching for informative information like this. Best broker in India
Interesting material great stock research spots.
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