Systematic Investment Plans (SIPs) have become a popular way for Indian investors to accumulate long-term wealth through mutual funds. SIPs allow putting small, regular sums into funds to grow savings in a disciplined manner. Let’s explore why an SIP is an attractive investment approach for retail investors.
How SIP investing works
An SIP involves investing a fixed chosen amount on a scheduled date each week, month or quarter into a mutual fund scheme. For example, investing ₹5,000 every month. This enforces savings discipline and rupee cost averaging. The fund units purchased compound over long periods to create corpus.
SIP instalments can be as low as ₹100-500 which makes it affordable. Investors can start, stop or change SIPs anytime. Leading online investment platforms make starting SIPs convenient through digital on-boarding.
Top benefits of SIP investing
SIPs have gained popularity among retail investors due to the following advantages:
Power of compounding – An SIP helps put the compounding effect to work by systematically investing over long periods. Interest earning on interest can snowball small savings into big corpus through the compounding effect over 10-20 years.
Enforces discipline – An SIP commits investor to save regularly by auto-debiting account. This ensures discipline regardless of volatility or investor mood, overcoming lack of self-control.
Averages costs – Rupee cost averaging ensures units bought at both low and high prices. This reduces risk compared to lumpsum investing at the wrong time.
Low minimum investment – With SIPs, small investors can invest in top mutual funds for as little as ₹100 per month.
Flexibility – SIP amount, frequency and investment choice can be adjusted anytime to suit income and needs. This flexibility accommodates life’s changes.
Automated investing – SIPs enable hands-free investing once mandate is in place. The auto-debit feature reduces manual intervention and enforces persistence.
Affordable entry – An SIP’s low-cost structure removes barriers to investing. Millennials find SIPs a viable tool for meeting long-term goals despite modest incomes early on.
How to get started with an SIP?
Starting an SIP is easy and quick in few simple steps:
1. Open a bank account – This is needed to provide seamless flow of funds from bank to investments.
2. Choose an SIP fund – Select from equity, debt, hybrid or solution-oriented schemes based on goals.
3. Pick an SIP amount and date – ₹1000-₹5000 invested each month or quarter suits most.
4. Submit an SIP request – Online or offline through forms. Provide bank details.
5. Make first investment – Fund house will now auto-debit each SIP installment on the chosen date.
SIP calculator
Investors can use online SIP calculators to forecast the future value of regular investments. Assumptions like time horizon, expected returns and SIP amount determine overall corpus created.
Conclusion
Adopting SIP investing ensures individuals save and invest regularly over long-term. This helps overcome lack of savings discipline through automated, hassle-free investing. Given the power of compounding and rupee cost averaging, SIPs offer a powerful tool for retail investors to achieve life’s money goals through disciplined mutual fund investing.
