Systematic Investment Plans - Why Invest

In the information age, many of us develop our own set of beliefs and judgement which is good but it is vital to recognize whether you are investing your money the right ways and this is where we must look at our investment options

Systematic Investment Plan or SIP is a form of investment that allows one to invest a certain amount of money at a regular interval. 

You can start by investing small amounts of money in weekly, monthly or in quarterly basis instead of investing at one go in a year.

It can be viewed as a method of investing a fixed sum, regularly, in a mutual fund scheme and lets one to buy units on a given date each month, so that one can implement a saving plan for themselves. 

When investing in SIP one does not need to time the market which makes it different from investing in the stock market.

It allows you to invest in a mutual fund by making smaller periodic investments in place of a one-time investment.

You can invest in an mutual fund without changing your other financial liabilities which involves rupee cost averaging and compounding to better appreciate the working of SIPs.
It has brought mutual funds to the common man as it enables even those with tight budgets to invest a specific amount on a regular basis.

While making small investments through SIP  it enables investors to get into the habit of saving and over the years, it can really add up and give you handsome returns. 

A monthly SIP would grow in 10 years, 30 years and 40 years depending on the time period you wish to invest.

SIPs reduces the chance of investing at the wrong time and then trying to recover after a wrong investment decision. 

The true benefit of an SIP is derived by investing at lower levels. 

One must remember that the rule of making your money work for you is to stay focused, invest regularly and maintain discipline in your investing pattern.

 A small amount set aside every month will not affect your monthly disposable income as it is easier to part with a few hundreds every month, rather than set aside a large sum for investing all at once.

It is said that one must start investing your hard earned money at an early age if you want to attain the benefits of compounding.

The effect of compounding an be gauged from the fact that the longer the compounding period, the higher the returns.

Instead of investing a specific amount each year, suppose you invested some money after every five years, starting at the age of 35. 

When it comes to rupee cost averaging you will find that when you invest the same amount in a fund at regular intervals over time, you buy more units when the price is lower and this would reduce your average cost per share over time. 

Rupee cost averaging can make a difference if you follow a long-term investment approach, as it can reduce the risks of investing in volatile markets.

Those who invest through SIPs have to be present during both the highs and the lows of the market and your average cost of investing comes down since you will go through all the phases of the market.

It is a very convenient way of investing as one can submit cheques along with the filled up enrollment form. 

There are no entry or exit loads on SIP investments although capital gains, wherever applicable, are taxed wherever applicable.

It works on the principle of regular investments and is similar to a recurring deposit where you put in a small amount every month. 

The total amount invested, thus remains the same when you will be 60, but your need to look at the fund value and this is where the advantage of compounding that is present in the early years makes a huge difference.

The mutual fund will deposit the cheques on the requested date and credit the units to your account and will send the confirmation when it is done.

Remember, there is more than just a return while selecting a mutual fund scheme that works for your portfolio.