SIP is a systematic investment plan which allows the investor to invest a fixed amount at fixed intervals which are pre-determined in a systematic manner. These investments with SIP can be done on a yearly, half-yearly, quarterly, monthly or weekly basis. The biggest advantage of investing with SIP is that it manages your funds and investments allowing you to focus on other important things and tasks.
While you invest with SIP over a long-term, the benefits are reaped at the time of returns as long-term systematic investment balances out the risk factor. SIPs are automatic transactions when it is time for the upcoming installment or payment. The next question which arises is how to go about SIP and what decides the amount of investment to be made.
The simple answer to this question is the SIP Calculator. Depending on your financial goal, SIP calculator calculates the amount of investment you need to make for a certain time period in order to achieve that goal.
This brings us to the next question, what is a SIP Calculator and how does it work?
Following are the benefits of SIP over one-time lump sum investment:
1. Disciplined investment approach
2. Allows you to start small and increase the investment amount gradually
3. Comes with two beneficial investment strategies-
Power of compounding- the returns are compounded making the amount huge. The basic fundamental behind compounding working on SIPs is that it puts your money to work. We have mentioned this phenomenon in a lot of our articles, which means that not only you work to earn that money but also your already earned money does so. As explained above, since the interest earned is also added to the next year’s principal amount, the earned interest is put back to work and generate more returns.Rupee cost averaging- balances out the risk and volatility. This phenomenon is very helpful in making buying-selling decisions depending on the market situation. It helps you buy funds when the market is low and sell when high hence balancing or averaging out the losses and risks.
4. Easy to use.
5. Timing the market is not required.
As we have already mentioned, the sooner the better. The earlier you start, the bigger are the returns. Also, start early for a longer investment span. Stretch that investment window of yours to a really long time say 40 years or 30 years and realize the oceans of wealth gained.
While you are still young and earning, it won’t trouble you much to take out a small portion from your regular income as compared to starting in the later years when there are tons of responsibilities.
There is always an excuse to stop that investment or stick to a particular amount that you started off with. Even if the returns are obvious, people tend to be sluggish when it comes to increasing the investment amount.
This can be resolved by investing through the SIP method. It is a systematic and automatic investment system which allows you to invest every month, a pre-fixed amount to your investment portfolio and averages out the volatility market shows over a period of time.
It is very important to choose your investment instrument rightly. Although we Indians have the instinct to go towards 100% safe instruments, the loss is realized at the time of maturity. If you happen to invest Rs. 1,00,000 in a bank Fixed Deposit at the interest rate of 7% for say 20 years, you will be awarded Rs. 3,87,000 at the time of maturity.
Whereas if you choose an instrument with almost 14% interest rate an invest the same amount for 20 years, you are awarded Rs. 13,74,000.
The difference is 10 times which is quite evident. Hence, be very careful where you invest your money.
Stay calm and patient. Do not panic if there are temporary market lows. They will fade away soon and if in case you happen to incur any loss, it will be averaged out in the long-term. A high is bound to come after a low. That is how the market works and your money grows. Be assured of the compounding working on your money.
With this initial investment, commit to yourself a habit of investment for a better and wealthy future. Start investing and stay invested.