Every one of us wants to achieve some goal which will require a lot of attention and time.
Many of us would just quit or delay the work which we have to do for the accomplishment of our goal, but this doesn’t help us eventually.
We have to be brave and take small steps toward our journey. One of such important tasks in our lives is handling our finances.
Financial goals may seem arduous, but with little effort, we can achieve them.
One doesn’t require massive capital to invest in various financial streams, it can easily invested through small amounts as little as your 2 film tickets a month. How can we invest through such schemes?
Let us understand SIPs.
What is SIP?
A Systematic Investment Plan is a way through which you can invest in your desired mutual fund scheme.
It can done with small amounts at regular intervals. It attracts many investors due to the ease and flexibility it offers to the customers.
It is considered as very popular in India among young salaried investors as they don’t have to mug up financial jargon and worry about the volatile market.
Advantages of Investing in SIP
1) Beating Inflation
Inflation in simple terms means that the value of your current money won’t remain the same in the future, it will fall to some percentage.
What our grandparents used to buy for ten rupees won’t remain same today, it will cost much more.
Investment becomes important to beat inflation and create wealth for the future.
2) Goals fulfilment
We are a family of four, and we all have different wants and needs. My brother would like to buy a new gaming pc.
My parents want their retirement funds earlier than they expect. With a limited salary or source of income, it becomes impossible to meet all the goals at the given time.
SIPs help us to understand our short-term and long-term goals and help us to know the time, amount, and return on investment we need to put in to achieve our goals.
It roughly gives a 12% compounded return annually, you can imagine the corpus you could build if you invest through SIPs.
3) Emergency Funds
Accumulated funds prove beneficial at the time of crisis.
When we require money urgently, loans are difficult to repay with interest charged on the funds, in such cases SIPs can save us from borrowing the funds.
Also Read: How can SIPs give you long-term benefits?
4)No lock-in period
As I have emphasized above that SIPs supports us at the time of crisis, which is possible due to the liquidity feature.
SIPs invested in Open-Ended Schemes, and it has no lock-in period. One can take the money any time they want.
How much ever, we tell our parents that they have been holding traditional methods of investing, and it cannot generate good wealth but one thing our generation lacks is proper financial planning and financial discipline.
We spent everything of what we earn, and it is much worse than our parents’ traditional methods of investment.
The spend first and Save Later approach will make us frustrated and worried, it can lead to the worst-case scenario.
One needs to save first and invest that amount at regular intervals. SIPs is a boon for beginners in their financial journey.
It is easy to manage and start without the need for much expertise in the field of finance.
6) Expert Management of funds
A mutual fund is a trust which brings investors together to achieve their financial goals and through SIPs, a small amount of investment are made by investors.
The funds of investors get managed professionally to make profits for the investors.
SIPs are very flexible. The minimum requirement to invest is Rs 500. It doesn’t have any lock-in period. No fixed tenure is necessitated to hold the investment.
It doesn’t require major financial knowledge. There are various apps with an excellent user interface which makes it easier to invest in SIP funds.
There are simple steps to follow:-
- Decide the amount you want to invest in the SIP
- Choose the period for payment (monthly, weekly, quarterly)
- Choose the desired Mutual fund scheme
- The automatic deduction will done from your bank at regular intervals
- Allocation of NAV (Net Asset Value) to the investors
8) Power of Compounding
In SIPs, you are not given interest on the fixed amount. You get a return on investment as well as a return on gains.
Example:- You have invested Rs 50,000 by the year-end this amount will become Rs 56,000 by 12% rate of return.
Next year you will have the return of Rs 56,000, i.e., Rs 62,720. This helps the corpus to grow at a much better rate than simple interest.
9) Rupee Cost Averaging
As we have seen that a fixed amount of funds is to invest at regular intervals, but the market doesn’t remain constant, it gets high and low according to the various events happening in the world.
In such a volatile market, it’s hard for investors to trust the process.
It’s not a big issue for experts they follow the method of rupee cost average, they buy more and more shares when the market is high and less when the market is low.
This method averages your investment and saves the portfolio from volatility.
The above benefits of SIPs are methods of making money in the long term. It inspires people to take a jump in the financial world.
It doesn’t deal with highly complex methods, and the minimum amount of investment helps investors to decide the number of funds to invest according to them.
Furthermore, it also pushes investors to save a little because they have to make investments at the regular decided period.
A financial discipline is built, and it generates an ample corpus of income and various goals can be planned, it wholly depends on the individuals’ motive.
With consistency and long-term investment, SIPS generate wealth for a better future.