WHY SIP COULD BE A GAME CHANGER FOR INVESTORS!

Meet Kashish, a travel enthusiast who wants to visit one new city every two or three months but always falls short of managing her budget and ends up saving a lot less than she should, this results in the cancellation of plans and emotional breakdowns that end up leeching out her aspirations. Recently Kashish came up with a plan to tackle her budget situation, she devised a plan to keep aside a defined portion of her earnings in her savings account every month, and somehow saved money for her travel plans as well, genius right? 

Like Kashish you can also start your journey of systematic savings with Systematic Investment Plans or SIPs, which offer you so many benefits that it is almost impossible to resist one! 

SIP stands for a systematic investment plan, it is a simple process of investing money in mutual funds consistently over a suggested period to create long-term wealth. SIPs are generally loved due to their simplicity and affordability! SIPs have a disciplined approach to investing in mutual funds and help the investor reap the benefits of compounding over time.

TYPES OF SIPs

SIPs come in various types and to understand which type will suit you the best, let’s dive deeper into each of the different SIPs to gain valuable insight into their concepts!:

• Regular SIP: In a regular SIP, investors contribute predetermined amounts at regular intervals that are typically or usually once a month and allow the investor to automate their investments.
• TOP-UP SIP: Top-up SIPs help investors to increase their monthly invested amount over a pre-defined period, this way an investor can enjoy accelerated wealth accumulation and increase their financial capacity.
• Flexible SIP: a flexible SIP enables the investor to increase, decrease, or stop their investment according to their financial circumstances. An investor can choose to invest according to his convenience.
• Trigger SIP: trigger SIP allows investors to set pre-defined triggers based on market conditions for their investments. Investors can automate their investments by using triggers to increase or decrease their investments according to certain market conditions.
• Perpetual SIP:  Perpetual SIPs continue for an indefinite period until the investor chooses to stop them or modify them, 
• Tax saving SIP: Tax saving SIP, also known as Equity Linked Savings Scheme(ELSS) SIP, allows investors to invest in equity mutual funds while also availing the benefits of tax saving under section 80C of the Income Tax Act. 

THE SIP CYCLE: HOW DOES AN SIP WORK?

Systematic investment plans work by contributing fixed or predetermined amounts at regular intervals( monthly, quarterly) but mostly SIPs work on the monthly cycle), let’s try to understand this in more depth:

• Setting up: the investor begins by selecting a mutual fund scheme and deciding the frequency of the investment ( monthly, Quarterly, and so on) and then they link their bank account to the SIP and after connecting it to the bank account the entire process becomes automatic. For example, once Kashish selects a suitable mutual fund scheme and sets the frequency of her investment, she will add her bank account to the SIP and automate the entire process accordingly.
• Investment: on the decided date, a predetermined or fixed amount will be deducted from the linked bank account of the investor and this amount will get transferred to the chosen mutual fund scheme. For example, a predetermined amount from Kashish’s bank account gets transferred to the mutual fund scheme selected by her on a specific pre-decided date.
• The compounding magic: with the increase in time, the investor’s amount earns returns and these returns are reinvested into the SIP. This process of reinvestment is known as compounding. According to our previous example, Kashish will get returns on the amount she invested in SIP and these returns will get reinvested into the SIP assuming she continues to stay invested in the SIP as advised and this will lead to wealth accelerated wealth accumulation!
• Regularity works wonders: we’ve already established that SIP is a regular investment and investors can contribute fixed amounts at regular intervals according to market conditions. Regularity in SIPs or certain SIPS that are continuous are more likely to perform well for the investors!
• Long-term investments: SIP is a long-term investment process, it encourages the investor to stay invested for longer durations to earn higher returns on their invested amount. For example, Kashish’s invested amount stood at 1,50,000 in a SIP and she was earning good returns on it, after some years due to a market crash her investment amount was reduced to 1,05,000, and like any normal investor in this situation she started to panic and wanted to pull out her money but her wealth manager insisted she stays invested and in a year she recovered the loss and doubled it in the next year! This is exactly why staying invested for a long time in SIP can benefit you exponentially!

INVESTING IN AN SIP: BENEFITS AND FEATURES!

Investing in a SIP – systematic investment plan can lead to many benefits, let’s dive into these benefits to understand SIPs better!

• Regularity in investments: we have established by now that SIP is a continuous and regular process, but why is regularity so stressed in the context of a SIP? With SIPs, investors can contribute fixed or predetermined amounts at regular intervals and this is solely done for the automation of the process which is a huge relief for investors as they don’t constantly have to worry about the investment process.
• Discipline and savings: SIPs are regular investments and instill somewhat discipline in the investor, as it is a completely automated process, SIP instills a saving habit in the investor which works wonders for their financial discipline and helps them save money for much more pressing matters!
• Rupee Cost Averaging: SIPs work on rupee cost averaging, which means when the market prices are high, the sip buys fewer units and when the market is low, the sip buys more units, hence the cost of investment is balanced over time.
• Benefits of compounding: SIPs create magic with compounding being the silent force behind it, and regular investing only leads to significant wealth accumulation. Compounding will boost even small contributions done with consistency into a substantial amount.
• Flexible investments: SIPs are flexible investment options for all kinds of investors in terms of the investment amount, duration of investment, and frequency of the investment. You can start, stop, and pause your investment and increase or decrease your investment amount and its frequency whenever you want without any restrictions or penalties.
• Affordable investment option: One of the more prominent reasons for the popularity of SIPs is that it is budget-friendly and affordable. You can start a SIP with 100 rupees too! For people with limited finances, a SIP is the best option!
• Diversified investments: with a SIP you can choose where to invest your money and diversify your investment portfolio even more, this helps in spreading and minimizing the investment risk and achieving desired results.
• Long-term wealth accumulation: SIPs are suitable for creating wealth for you in the long term because they insist on long-term investing and for extended periods!

ON A PARTING NOTE..

Starting your sip journey could be one of the best investment decisions, as discussed SIPs have many benefits that you can and should avail! Especially for the young individuals like kashish, SIP could be a game changer when managing their finances and investing for a better future! Time is money- remember that, and make the most out of all the time you have got. The more the merrier!

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Disclaimer – This article is for educational purposes only and by no means intends to substitute expert guidance. Mutual fund investments are subject to market risks. Please read the offer document carefully before investing.