It is better to save something, even if it is a small amount, than to have no savings at all. Furthermore, if you can build on your savings, however small they may be, that is an even better way to handle your money. The common consensus among several investors today is to invest in mutual funds. Regular mutual funds are great investments to get into, but may require investors to dole out lump sums when signing up. Every investor is not the same, and some investors may have large amounts of capital to invest, while some (small investors) may wish to invest, but not have so much wealth to spare for investment. A SIP investment offers an excellent solution for the small investor today.
First of all, we should be aware of who the small investor is. A small investor is any investor who may have just started earning a salary. A small investor could also be a retired person with some cash to spare and who wants to grow it. Small investors are those investors who would like to start their investment with small amounts of capital rather than invest one large lump sum in any scheme in one go. Small investors also prefer gradual ways of investing with a small amount of capital at frequent intervals. A SIP investment may offer such investors an easy solution to invest and grow wealth till they are ready for larger investment vehicles. Therefore, for such investors, starting an investment with having to open a demat account and invest in direct equity may not be an excellent initial financial investment step to take. Going in for a SIP is a wiser move.
A systematic plan is an investment instrument through which investors invest in mutual funds. However, in contrast to mutual funds, SIPs allow investors to invest small amounts of money in regular and gradual intervals. Moreover, these amounts may be fixed so that they are automatically debited from bank accounts every month (or any other period). The benefit here is that investors are compelled to save a portion of their earnings in a regular and disciplined manner. Furthermore, a SIP offers new investors the power to compound wealth. So returns are reinvested, and wealth can grow. Therefore, for fresh investors and those just starting out small, a SIP may be a better alternative to other kinds of investment like regular mutual funds or any upcoming IPO.
You can start a SIP investment with an amount which is as low as Rs. 500. For a small investor, this limit may be easy to create an investment with. Furthermore, SIPs encourage many small investors to begin investing as they don’t have significant investment amounts stipulated. This helps freshers to inculcate an investment habit and gets people to know the knack of the prudent investment. Even if you have large amounts of disposable income, you may not want to take significant risks. SIPs are suitable for small investors who wish to avoid risk and learn about the markets before they invest more. Additionally, SIPs let you gradually increase investment amounts, so you can start off small. Slowly, if your income rises or you gain more investment confidence, you can continue to invest more in systematic investment plans.
SIPs give small investors advantages over other investment vehicles. To start investing today, stocks are not the only answer; you don’t have to open a demat account to create a SIP investment. Someone may suggest you invest in any upcoming IPO, but as a small investor, you may not want the risk of this. Instead, you can start a SIP as a small investor, till you get to know about investments. With a SIP, you can begin small, there’s no need to time markets, and you gain high returns with compounding power.
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