SIP
--- Systematic Investment Plan (SIP)
While you get ready for work, Your SIP is already on the job.
To achieve financial success in life, we put in a lot of hours at work. And it is only during these hours that we actually strive towards achieving our goal. But with a Systematic Investment Plan (SIP), your success is in progress. SIP lets you invest a fixed amount in mutual funds step-by-step, monthly pr quarterly over a period of time, thereby averaging out your cost of investing and benefiting from the power of compounding. The power of compounding works best as you stay invested helping your money earn more money itself, over the years. So, as you get ready for work or even decid to take a break from it, be rest assured that SIP is constantly working towards your goals and helps you keep your success in progress.
Working Principles of SIPs
SIPs operate based on two fundamental principles
1: Rupee Cost Averaging
SIPs mitigate market volatility by eliminating the uncertainty associated with market performance. Regular investments result in an averaged purchase cost over the long term, ensuring that, when markets rise, fewer units are acquired, and when they fall, more units are obtained. This minimizes risk and maintains a lower average cost per unit.
2: Compounding
Consistently saving a small sum over extended periods can yield exponential returns due to the compounding effect. An illustrative example showcases the substantial impact of compounding on long-term investments.
‘A’ begins investing for retirement at age 40, with a total corpus of Rs. 5,28,000 after 20 years.
‘B’ starts investing at age 20 and accumulates a staggering Rs. 26,56,436 over 40 years, nearly five times the corpus of ‘A.’
Advantages of SIP Investments
1: Financial Discipline
SIPs foster financial discipline by promoting regularity, encouraging forced savings, and facilitating corpus building without compromising one’s lifestyle.
2: Flexibility
SIPs offer flexibility in investment, allowing adjustments to the investment amount at any given time.
3: Convenience
Hassle-free and easily manageable online, SIPs automatically accumulate based on a one-time set of instructions.
4: Lower Risk
Unlike lump-sum investments that expose capital to greater risk, SIPs spread investments over time, reducing the overall risk to capital and enhancing resilience to market volatility.