Systematic Steps for a Great Future
The best way to build a corpus over the long-term is through investing. Savings are insufficient to meet all your financial goals and leaving cash in your bank account does not help it earn high returns.
You may choose amongst several options to invest your money. You may invest in equities, debt, mutual funds (MFs), fixed deposits, and several other products. Equities provide high returns but come with a huge risk due to the volatility of the stock market. Debt instruments provide stable but lower returns. The MFs invest the corpus in multiple investments to earn returns for the unitholders.
Financial discipline is important to help you build wealth. One way to achieve such discipline is to invest in MFs through Systematic Investment Plans (SIPs).
What is SIP?
These plans allow you to invest in MF schemes and are long-term instruments with tenure between ten and 15 years. You may invest a pre-defined amount in your chosen funds at periodic intervals, which may be monthly or quarterly.
How to start an SIP
You may begin a systematic plan with any open-ended MF scheme. You may need to fill up an application form and provide an SIP mandate to the MF house. Usually, it takes between ten and 30 days to start the plan.
- Choose the fund that best suits your personal requirements, financial objectives, and risk profile
- Complete the application or the systematic investment plan form mentioning the scheme and other information
- Submit the National Automated Clearing House (NACH) mandate
- Complete the know-your-customer formalities
You may submit the form to the MF distributor, investment advisor, relationship manager, or an agent. You may also submit the information directly to the asset management company.
MF houses also allow you to start the systematic plan online directly through the official website. It is important to choose direct plans while you make your investment decision.
Advantages of investing through SIPs
- Rupee-cost averaging
One benefit of investing through SIPs is that your investments are not severely affected by the market volatility. If the markets come down, you are able to purchase a higher number of units with the pre-defined amount. Alternatively, you procure lesser units when the prices are higher with the same investment amount.
- Financial discipline
Another benefit of investing in SIPs is that such plans allow you to inculcate the habit of regular savings, which is crucial to building wealth over the long-term.
Moreover, you may invest with a small amount that ensures you do not have any liquidity crunches while investing in mutual funds. You may start a systematic investment plan with as less as INR 500 per month.
- Power of compounding
Using a systematic plan to invest in MF schemes allows you to benefit from the power of compounding. This means that your initial investment earns returns, which are reinvested to earn higher earnings. As a result, you are able to accumulate a sizeable corpus over a longer period of time.
Investing in SIPs offers you versatility. You may increase or decrease the periodic amount as per the rise or fall in your income. Moreover, you may modify the investment period based on your changing requirements. Unlike fixed or recurring deposits, there is no minimum lock-in period when you invest through systematic plans. You may also shift your investment from one scheme to another.
Systematic investment plans are the best way to achieve your financial goals whether it is to buy a home or pay for your children’s higher education. Start your SIP today and see your money grow over the years.