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WHY SHOULD YOU INVEST IN SIP



INTRODUCTION

The systematic investment plan is popularly knowwwn as SIP. With SIP, you as an investor are required to invest a fixed amount of money every month or quarter in a mutual fund of your choice. Whenever you start an SIP, you can do it for a fixed duration or you can start a perpetual SIP. In perpetual SIP, you can later decide when you want to stop it.

WHY INVEST IN SIP

When talking about SIP, you invest a fixed amount on a regular basis, i.e. on a monthly or quarterly basis and this investment is for your long term goals which are more than 5 years away, for instance, a child’s higher education, your retirement planning etc. Whenever you look at such long term goals, equity is the asset class that you should invest in.

Below mentioned are some of the reasons advocating why you should invest in SIP’s:

1.Instills a discipline of saving: The current era is an era of high consumption. You are exposed to credit cards, there are a lot of malls around, you want to buy fancy cars, fancy gadgets and even though you are earning well, you end up spending more. So when you actually want to start an SIP, you have to see what your income is, what your actual expenses are and how much you can invest. So after starting an SIP, you pay yourself first and then you manage your expenses from what is left over and this is how you start saving.

2.Reduces overall risk of investment: For example, if somebody had an SIP from 2006 to 2016, they would have invested at each stage of the market, i.e. in the highs and the lows of the market and the end result would have been a steady capital appreciation. This is how SIP reduces the overall risk of investment.

3.Rupee cost averaging benefit: If you invest in mutual funds via SIP, your investment amount remains constant but the number of units purchased each time will be different depending on change in NAV of scheme units.Thus, whenever the NAV is high, you get less number of units and whenever the NAV is low, you get more number of units. 

For example suppose, you are investing Rs. 1000 every month and the unit NAV for the first, second and third months are Rs. 20, Rs. 25 and Rs. 30 respectively. In the first month, you get 50 units, in the second month you get 40 units and in the 3rd month you get 33.33 units. Thus total number of units purchased equal 123.33 for a total investment of Rs. 3000 and the average cost of units will be Rs. 24.32 which is less than the price at which you purchased fund units in the second and thirds months.

4.Automatic timing: It is almost impossible to time the market. Automatic timing is a benefit that SIP gives you. You don’t have to worry about how much to invest and when to invest as through SIP, you are investing into the market regularly.

5.Achieve your goals comfortably :SIP helps you achieve your financial goals comfortably. As you have been saving from a long time towards your bigger financial goals, be it your child’s higher education, retirement planning, etc.

CONCLUSION

The idea behind a systematic investment plan is that you invest a predetermined amount every month or quarter for a specified period of time thus allowing you to be disciplined in your savings. Since you are investing on a regular basis at regular intervals, your investment price is averaged and you are less likely to be adversely affected by the fluctuations of the market.

 You can start investing early in your life so that you can understand the power of compounding over the years. You can start with as little as Rs.500 and you can also invest in SIP’s online from the comfort of your home. SIP’s are a great way to ensure that you invest regularly and minimize risk by averaging your buying price over a period of time.  Basically, you can achieve big goals by investing small amounts regularly. 
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