The Super Power of SIP

In this article, we discuss how the simple SIP is actually a Super Power for the common retail investor. Know how it uses the power of compounding to help you take the right steps towards investing.

Do you get petrified at the mere thought of market volatility? If yes, fret not. You are not alone. Systematic Investment Plan, also known as SIP is the right investment product for investors like you. This article will explain the superpower of SIP and why you should invest in SIP.

What is SIP?

SIP is simply an investment tool that allows investors to invest in mutual funds. Under the SIP investment, an investor invests a pre-determined, usually fixed amount of money at predetermined intervals for a specific period of time in their preferred mutual fund schemes. The periodicity of the intervals can be according to the convenience of the investor, i.e. daily, weekly, monthly, semi-monthly, annually, etc. The SIP approach of investing allows investors to take their savings, irrespective of it being big or small, and grow them in a way that it multiplies and grows over time.

But, what is the power of SIP?

Individuals invest in mutual funds via the SIP route for a variety of advantages it offers to them. Let's have a look at a few of the advantages provided by SIP investments:

1. Power of compounding

When you stay invested for a long duration, say five to ten years, you benefit from the power of compounding, also referred to as the eighth wonder of the world by most experts. Compounding allows accruing a higher corpus over time. It ensures that your returns on mutual fund investments further work to collect more returns. Hence, to fully profit from the compounding effect, it is always advised to invest as soon as possible, preferably at an early age.

2. Rupee cost averaging

One of the biggest rewards of investing in mutual funds via SIP is rupee cost averaging. Under the SIP investment, investments towards the mutual fund scheme are made irrespective of the market conditions. This permits the fund to obtain lesser units when the markets are high and more units when the markets are low. This averages out the total cost of fund units and also helps to diminish the overall cost, with an increase in the instalments. As a result, an investor is able to earn higher returns on their total principal amount during the time of exit.

3. Disciplined investing

To meet your financial objectives smoothly and without a hiccup down the road, it is essential to practice financial discipline. As SIPs are automatic, they inculcate a sense of financial discipline among their investors. Under SIP, your mutual fund investment is not dependent on your willingness or ability. Further, investments in mutual funds via SIP ensure that you do not exit the market in times of market corrections. Hence, a disciplined mode of investment is important to meet your long-term objectives.

4. Pocket friendly

It is not always likely for investors to assemble the entire investment amount in one go. As SIP mode allows an investor to invest in mutual funds at a periodic rate, they are quite friendly on the pockets. An investor can invest as low as Rs 100 per month in SIPs.

The power of SIP is enormous. What's more, an investor can also anticipate the probable returns on their SIP investments using a SIP calculator. A mutual funds SIP calculator can also help you to understand the investment amount needed to meet your future goals in a given time frame. Happy investing!


Author: Umesh09 Feb 2021 Member Level: Gold   Points : 7

SIP was introduced by the financial companies to make it easy for the small investors who cannot afford to spend big amounts in one go. It is meeting the purpose and to that effect it is a very popular mode of investing with the small investors. There are many points which encourage us to go for this mode but one of the topmost consideration is the averaging of the risk that SIP manages through its inherent design. What happens is that when the market goes low the investor is automatically facilitated to invest in that bear market and gets more number of units in the same amount and when the market goes up he gets less new units but his existing units bought long back in low prices compensate for it. In case the market booms he is benefited immensely. At the same time many one time investors fall in the trap of investing in market when it is on a bull phase and as everyone is investing he also follows the trend only to lose money when a meltdown in the market takes place. It has happened in past many times that the investors which entered the market in peak of the market lost significantly. So, one time investments are sometimes having bigger risks which are smoothened by SIP plans.

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