What is a Systematic Investment Plan?
A Systematic Investment Plan commonly known as SIP is a mode through which one invests in mutual funds. A pre-detremined amount is regular invested through this plans. An amount can be invested each week, each month or each quarter. It’s an approach which helps you invest regularly. This ensures a habit of regular savings and building your capital requirement for future.
How does an SIP Work?
SIP investments happen through an auto-debit facility from your bank account. A fixed amount of your choice is invested in the chosen mutual fund. Against that amount you are credited with units of that particular mutual fund scheme. The no. of units are defined upon the ongoing i.e. current market rate of that mutual fund scheme i.e. the NAV (Net Asset Value). Each time of your SIP investment, an additional purchase of the units happen for that mutual fund scheme and the units get credited to your account. Each time of purchase the units are governed by different market rates. Investors are benefited through Rupee-Cost Averaging.
Rupee-cost averaging is that your money buys more units of the mutual fund scheme when the price is low. And lesser units are bought when the prices are high (A low NAV helps buy more units & high NAV gives you lesser units).
You are enjoying the Eighth Wonder of the World i.e. Power of Compounding
Albert Einstein said, “ Compounding interest is the 8th wonder of the world”. How? Understand it better as follows:
You start investing at the age of 35 years with an amount of INR 10,000 each month in a mutual fund scheme through SIP. Let’s assume that you start earning an interest of 10% per annum. After 30 years i.e. you are 65 years the total capital generated for you is INR 2.25 crores.
And now we take a case where you had started investing 10 years earlier. i.e. at the age of 25 years. At the age of 65 years, the power of compounding interest would generate a capital of INR 6.30 crores.
Please understand the power of compounding wealth and start investing early through Systematic Investment Plans (SIPs). 10 years delay in investing makes you lose your potential wealth. It’s a notional oss. But a huge one. But it’s never too late. Hence, it’s advisable to start investing appropriately through SIPs.
How SIPs work in the interest of the investor?
- Ensures Savings – Investing through SIP, helps one save regularly. More than a mere habit, a disciplinary regime of savings is inculcated.
- Flexible Options – SIP investments are usually for a long-term objective. But one is allowed to stop the investment at any point of time. Amount of investments can be increased or even decreased.
- Attractive Long-Terms Capital Generation is achieved through rupee-cost averaging & power of compounding.
- Convenience of Investment through auto-debit facility through your bank account.
- A very good investment option for retail investors.
If one exercises an SIP regime and that too at an early stage of life then surely one achieves humongous returns in the long run.
Depending on one’s goals of short-term, intermediate & long-term, various SIP investments can be availed.
To know more email us at empower@empowereducation.in
