Systematic Investment Plan (SIP) – The best vehicle of long term wealth creation

Mutual Fund is now familiar to most of the investors. Thanks to social media, TV, newspaper and magazine advertisements. Business channels’ financial literacy programs are also educating investors about Mutual Funds benefits. People are interested in knowing the concept in detail. They are now eager to take the well-informed financial decision to grow their wealth.

Mutual Funds are suitable to all types of investors having ultra-short, short and long term horizon. An investor can invest in a mutual fund in two ways. The first one is a Lump sum payment and another one is through SIP. Systematic Investment Plan is a great tool to invest in a staggered manner allowing the investor to invest small amounts periodically i.e. weekly, monthly or quarterly. The investor can start investing in a mutual fund through SIP by a minimum of Rs. 500 only. Some scheme also has the provision of monthly SIP of Rs.100.

SIP provides the benefit of Rupee Cost Averaging. Rupee cost averaging is an approach in which you invest a fixed amount of money at regular intervals. This, in turn, ensures that you buy more units of a particular mutual fund when prices are low and less when they are high. Thus, in the long term, you are benefited by a bull as well as a bear run of the stock market.

SIP keeps you worry free about the timing of the market. No one can time the market, it is next to impossible. So just sitting on the cash and waiting for the right time to invest in nothing but wasting your time. SIP helps the investor to be disciplined in investing irrespective of the mood of the market. With all these benefits SIP is now favorite among investors.

Equity Mutual fund returns are market linked. It carries risk but in the long run, through SIP investment pattern this risk becomes calculated and almost manageable. SIP made in a good quality Large, Multi-cap funds and a smaller portion in Mid and Small caps can generate returns ranging from 12 to 16% p.a. But considering ups and downs in the equity market it is always prudent to be realistic and reasonable. SIP investments’ rate of return should be considered at 11% p.a. (overall portfolio return) for the safer side if the investment made through SIP.

Points to remember :

  • Fix your goal first and set its time horizon.
  • Segregate them into short term and long term goals.
  • Choose Debt Mutual funds for Short term and Equity Mutual funds only when the time horizon of a goal is or more than 7 years.
  • Then map each SIP in a mutual fund with that particular goal.
  • There is never a good time to start SIP. Don’t try to time the market and sit on the cash looking for the right opportunity.
  • Give proper time to each chosen SIP to witness both bull and bear phase of share market.
  • Don’t jump on the conclusion to change the chosen SIP of mutual fund in every 3/6 months.
  • More than focusing on the capacity of generating high returns focus on managing downside risk management of the chosen SIP.
  • Always choose your mutual fund SIP based on Core and Satellite approach especially for Equity Mutual fund.
  • And very IMPORTANTLY never stop your SIP investment because of short term fluctuations in the share market. Both bull and bear market cycles are important for the SIP to generate good returns in the long run.
  • Patience and discipline in continuing your investment in SIP is very important for reaping huge benefits out of SIP investments.
  • Equity Mutual fund SIP pays off only in the LONG RUN.

SIP is the best vehicle to create LONG TERM WEALTH. What are you waiting for? Start your SIP TODAY.

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