A systematic investment plan, commonly referred to as SIP, is a seamless and hassle-free channel for investing in schemes. Following a SIP involves investing certain sums at regular intervals. For salaried individuals, their monthly salary allows them to set aside some money on a regular basis, some of which can then be invested. Thus, rather than investing in a lump sum, it is better for salaried professionals to invest in mutual funds via SIPs.
Investors in the equity market need to be prepared for volatility at all times. However, SIPs allow you to rest easy without having to worry about entering the market at the perfect time. Rupee-cost averaging lets you avoid this stage as a regular investor. With rupee-cost averaging, you invest a fixed sum of money at periodic intervals regardless of whether the market is on the rise or decline. Thus, despite volatility, you buy more units when the market is going low, and fewer units when it is high.
Compounding is a very simple mechanism but carries great rewards. It essentially refers to when your returns start accruing more returns themselves. When returns from investments are reinvested, they can earn even more. If you have just started earning, you will have a longer investment tenure and can make the most of compounding as you have an early start.
Following SIPs requires you to invest a fixed amount at intervals, creating a regular investment and savings pattern. As a successful investor, discipline is key. Over time, large-cap schemes can bring returns that are as good as those from recurring deposits or fixed deposits.
SIPs take away the complications and hassles involved in investing. Standing instructions can be issued to your bank for auto-debits, at desired intervals. Beyond following the plan, there is not much additional work you need to do. For a working professional, this is a huge relief.
It is generally advised that SIPs be taken up for the long term. However, you still have the option to discontinue it anytime, reduce the investment amount or increase it as needed.
Here are a few tips that can help you optimize your SIP investments :
To Sum it Up
A systematic investment plan can go a long way in helping you achieve success as an investor. For short-term goals, it is advisable to invest in low-duration or liquid funds. Meanwhile, hybrid or debt funds that invest in fixed income instruments are a better choice for medium-term goals. Lastly, for long-term goals, you can invest in large-cap equity funds. By investing in SIP working professionals can enjoy great returns without any additional worries.
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