A systematic Investment Plan or SIP has enabled investors from all walks of life to enjoy the benefits of a well-managed investment portfolio. Besides encouraging a disciplined savings and investment approach, SIPs have proved instrumental in generating a reasonable amount of wealth when invested with a long-term perspective. Moreover, as accessible and easily manageable investment options, millennials generally prefer SIPs.
All about SIP Investment
SIPs are investment tools offered by Mutual Funds houses. With SIPs, you can start your investment journey with as low as Rs 500. You can choose your investment interval from the weekly, monthly, quarterly, semi-annual and annual options. Through the benefit of compounding and the advantages related to expense ratios, SIPs help you grow your wealth through long-term investments.
Benefits of Long Term SIP investments
- Power of compounding: In mutual funds, compounding refers to the interest or profits earned on the profits on your investments. Investments made at regular intervals benefit from the power of compounding in the long run, thereby allowing the investment to grow and earn decent returns. When you start a SIP, a set amount is invested in your mutual fund each month. Investors receive shares in the form of units based on the amount invested and the fund’s current Net Asset Value (NAV). Fewer units are allotted when the NAV is high. Similarly, mutual fund investors are given a larger number of units when the NAV is low.
- Rupee Cost Averaging: Rupee Cost Averaging is achieved when an investor invests a fixed amount of money at regular intervals. As a result, the investor will buy more shares of an investment when prices are low and less when they are high. The rupee cost averaging effect averages out your unit costs, reducing the impact of short-term market fluctuations on your investments.
- Disciplined investment: SIPs are an excellent way to invest in the stock market. Equity market SIPs help an investor invest regularly in a disciplined manner. This disciplined approach allows an investor not to get carried away with market fluctuations and cyclic markets.
- Flexibility: With options ranging from equity to debt to hybrid, and with variation available within each of these options, SIPs are an excellently flexible investment avenue. Also, one can invest in them with as little as Rs 100.
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Are Long Term SIPs Beneficial?
Considering Rupee Cost Averaging, SIP is an advantageous proposition in most long-term investments. Long-term investment in the equity market is most prudent when an investor wishes to create wealth through SIPs. Hence, SIPs should be considered over lumpsum investment in the equity segments.
Stock SIP is a way to invest in listed shares on a stock exchange. Here, the investor decides to invest in various shares using a systematic approach at a predetermined interval. It is prudent to invest for those with a long-term investment perspective. It helps investors mitigate the risk of market uncertainties and market cycles. It is also known as the DIY SIP (Do it Yourself — SIP).
Stock SIP works better than direct lumpsum investment in stocks because, as demonstrated by various market crashes, the lumpsum investor will face a longer duration of losses. While the initial investment price remains constant, the Stock SIP investor benefits from Rupee Cost Advantage, as his average unit price will fall as the market falls and stand to profit compared to the lumpsum investor.
Stock SIP is a good investment tool. Understanding how to choose a share market SIP goes a long way. An investor who wishes to start a SIP in the share market needs to understand the SIPs risk parameters and his own risk profile. When both are in tandem, the investment in such a Stock SIP should be considered.
Future of SIP investments
SIPs have displayed a continuous, disciplined performance approach in different market scenarios. The future of SIPs is safe in the country, and they are here to stay. With time there may be innovation and adjustments in the way investments in SIPs are undertaken. Rising conviction in this investment vehicle will keep service providers on their toes to provide a competitive and superior portfolio.
As investment instruments, SIPs have numerous benefits. The market is constantly evolving to give investors varied options to enhance performance. SIPs can be an excellent way to achieve optimal returns and create wealth with a long-term investment mindset. Moreover, SIP for long-term investment can genuinely be an efficient way of making Rupee Cost Averaging and compounding work in your favour.
SIPs are generally an excellent tool for investors as they allow you to invest with smaller amounts. With WealthBaskets, you can invest in a basket of stocks and ETFs based on a sector, theme or idea using SIP. The WealthBaskets are created and managed by leading SEBI registered experts. So check them out now.
Mutual funds are a way to invest in different assets utilizing the knowledge and experience of fund managers. An investor with a long-term wealth creation goal must invest systematically in investment vehicles with a proven track record of accomplishments.
When undertaken over the long term, Stock SIP investment can help investors accumulate a reasonable amount of wealth.
Through SIP, investors get the benefit of the power of compounding. Long-term SIP investments have a Rupee Cost Averaging advantage too. In addition, SIPs benefit from a disciplined investment approach and flexibility regarding investment amount and interval.