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10Th December 2016
“Being rich is having money; being wealthy is
having time” – Margaret Bonnano
More often than not, we tend to believe that
building wealth is stocking up cash inside a locker or trying to maintain a
positive balance in a savings account. While undoubtedly prudent saving is the
first step to building wealth, it remains just that – the first step. Building
wealth, however, is more about the smarter process of multiplying your savings
by investing in the right avenues for a secure future with realistic goals. So
is there a way to make investing a habit? Could you do it on autopilot without
having to remember it every time? Is it necessary to have a huge amount in
order to invest?
What if we told you that an amount as little
as Rs 1,000 a month can go a long way in building wealth? What if we told you
there was an investment option that can get you great returns despite market
uncertainties?
Well, you only have one answer to all these
questions – Meet the SIP!
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S.I.P VS STEP UP S.I.P(The
Total Investment & Insurance Solutions)
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Systematic Investment Plan (SIP)
A SIP is that friend who will help you
inculcate the habit of investing regularly and wisely. SIP stands for
Systematic Investment Plan. It is the strategy of investing a fixed amount
periodically (typically every month) in mutual funds that are apt for you and
will help you achieve your goals.
Here are some of the greatest
advantages of SIPs:
·
Invest on auto pilot – A SIP is a great way to inculcate the habit of
disciplined investing as it is a commitment made by you to consciously invest a
certain amount regularly. What’s more, once you set up your SIP, the amount is
automatically debited from your bank account each month, ensuring that a
structured investment is made consistently. In other words, you simply set it
up and allow it to run on an auto pilot mode. You do not have to worry about
missing an instalment.
·
Small sums, big money – SIPs allow you to invest small sums regularly. Unlike a
fixed deposit where you need a chunk of money, you can start investing with as
low as Rs 1,000 every month in mutual funds and allow it to grow over a period
of time. That means you do not have to get rich to start investing. You
can start investing early on in your career.
·
The benefits of early investing are as high
as, if not more than, those of disciplined investing. Say, Raj (30) invests Rs
5,000 a month regularly for 20 years with a 10% annual return. He will be able
to procure Rs 37 lakhs. However, if he had started investing 10 years earlier,
he would have procured 1.13cr at the end of 30 years, given the same base
amount and average annual growth of 10%. With SIPs you have very little excuses
for not investing!
The
magic of
rupee-cost averaging – SIPs allow you to invest in the ups and downs of the
market. Since you get to invest across various market phases, you buy more
units when the market is down and fewer units when the markets peak. In other
words, you actually get to do some bargain hunting automatically! And you do
this without the risk of having to time the market. You do not need to know
when the market is high or when it is falling. Your SIPs do the job for you. So
how does this help? This averaging effectively reduces your cost (as you buy in
market lows as well) and therefore improves your returns. But remember,
for averaging to work, you will need to invest over long periods of time. Only
then will you buy on dips.
·
Flexibility – In a SIP, the amount that you choose to invest
periodically can be changed at any time. The key benefit here is that as
you progress in your career and your income grows, you can increase your
investment amount and thereby increase the value of your growing returns. This
way, you ensure that your corpus grows as your income grows. In addition, there
is no lock-in period in SIP, unlike a recurring deposit scheme in banks. At
FundsIndia, the process is made even easier by giving you the option of setting
up a Step Up SIP, where you can set frequency and the amount by which your SIP
should increase with time.
·
The power of compounding-
One of the biggest advantages of a SIP is the impact of compounding it offers,
which is much higher than a Recurring Deposit (RD). Say, Raj invests Rs.1000 a month
in an RD for 120 months at an annual rate of 7.5%; his investment would yield
him Rs. 1,76,113 at the end of the term. However, if he invests the same in a
well performing mutual fund through a SIP, say with Franklin Templeton Blue
Chip G (which has been delivering an average return of 13%), the same amount
will yield him a return of Rs. 2,42,960 at the end of the same 120 months. With
mutual funds, compounding works every single day, unlike your bank deposits,
where interest is compounded monthly (RDs) or quarterly (FDs). Which one do you
think is better?
So, going forward, the question is not ‘Are
you going to invest?’, but ‘WHEN are you going to invest?’ And the answer is —
Start today!
Happy Investing!
