Systematic Investment Plan

–A small step towards your goal

In our last article, we have discussed about Goal based Planning. Now, we will understand how can SIP help you achieve your goal.

A saying quote –

“A man who moves a mountain begins by carrying away small stones”

In the same way, no matter how large the financial goal is, it is always achievable by taking small investment steps. SIP is one such step.

“Systematic Investment Plan facilitates an investor to invest fixed amount of money at pre-determined intervals in to selected mutual fund scheme”.

There are many features of SIP. They are:

• Power of Compounding: Though you invest little amounts at a time, over the time, huge corpus can be accumulated with help of compounding.
• Lessen financial burden: Investing a hefty amount all at once can cause a burden on finances and cash flow. In case of a SIP, forgoing a weekend plan can pay for that installment of SIP.
• Rupee Cost averaging: With SIP, you will get to buy less number of units when NAV is high and more number of units when NAV is low. Thus, it helps averaging out total cost of your investment. In lumpsum, it may happen the NAV is high on day of payment, yielding less units.
• Flexibility: With SIPs, you can choose the amount, frequency, dates and funds all by yourself according to your convenience.
• Disciplined Investing: By linking respective financial goal to SIP, corpus is accumulated more efficiently and discipline in investments is maintained.
• Helps dealing with behavioral biases: Unlike lumpsum payment, you need not keep an eye and track market intensely. Sometimes, due to fear, anxiety and misinformation, you may miss out investing. SIP helps mitigating this risk. In case of SIP, money is spread across time and not one point of time.
• Auto debit option: SIP provides facility to auto transfer funds from bank account to fund on pre-determined dates at pre-determined frequency. Thus, you need not remember the dates and prevents missing out payments.
• Diversification: Investible corpus can be spread across different funds since SIPs can be made with small amounts. Thus, you can manage risk through diversification. You can start an SIP with amount as small as Rs.500.
• Flexibility: You can invest amount in different frequencies like Daily, Weekly, Monthly, Quarterly, Half yearly, etc.

Conclusion:

One can say, SIP is the easiest and best option to enter the world of finance for beginners and long-term investors. Disciplined investing and sticking around with the your goal based plan will definitely yield desired results. In our upcoming articles, we will know be discussing about STP, SWP as well.