Consistency is the key to everything. Be it achieving any of your life’s goals, losing weight, gaining muscles, gaining followers on social media sites, bringing in more traction to your social media video channel. You need to be consistent in everything that you and only then there are chances of you achieving some success. Similar is the case with mutual fund investing. You can achieve long term capital appreciation with mutual fund investments by remaining consistent through a Systematic Investment Plan.
A Systematic Investment Plan or SIP as it is commonly referred to as is a simple investment approach which any individual can adopt to achieve their life’s financial goals. And the best part about SIP investing is that one does not need to have a large surplus at their disposal to begin their investment journey. Investors can start as low as Rs 500 every month and gradually increase their SIP investments.
Let us find out more about SIP and how one can utilize it to improve their mutual fund portfolio performance.
What is a Systematic Investment Plan?
A Systematic Investment Plan is a mere tool to invest in mutual funds and not an investment scheme in itself as misinterpreted by several. A SIP can help an individual inculcate the discipline of regular investing. All an investor has to do is zero in on a fixed sum and decide a date so that he/she invests this sum every month. If they automate their transactions, the money is debited from their savings account and electronically transferred to the mutual fund scheme every month.
Benefits of Systematic Investment Plan
Hassle-free investing – Once you automate your SIP transactions every month on a fixed date, the predefined SIP sum is debited from the investor’s savings account and electronically transferred to the SIP sum. This allows them to save and invest a fixed sum at periodic intervals which is an ideal way to invest for long term wealth creation.
Power of compounding – Once you start earning decent returns from your SIP investments if you do not redeem these investments and instead if you reinvest them, it will lead to a compounding effect. In mutual fund terms, the word compounding refers to the interest earned on the interest earned from the initial investment sum. However, to witness the power of compounding one can continue to remain invested for the long haul.
Rupee cost averaging – The average cost of purchase of an investor may reduce through long term SIP investing. When the NAV of the scheme is low, more units are allotted to the individual’s portfolio. Similarly, when the NAV of the fund is high fewer units are allotted. This readjustment of unit allocation is referred to as rupee cost averaging and since the markets keep fluctuating from time to time, you end up buying more units in the long run.
SIPs are highly flexible in nature – One more reason to consider SIP is that investors have total control over their investments. You as a mutual fund SIP investor decide how much money to invest. You can even choose intervals like monthly (most favored), weekly, quarterly, biannually, or annually. Investors can even modify their SIP investment sum. At the same time, they can even skip a month’s SIP and do not have to pay any fine for doing so.
Since SIP investments are highly flexible, an individual doesn’t lose on their investments and has the chance of earning better returns in the long run.
