If you’re one of the 51% of Indians who don’t save habitually, your savings aren’t going to last very long. Now that you’ve been earning income for a while, you may have gotten better at saving money every month. But, somehow, that one unplanned vacation or that latest ‘must-have’ mobile phone makes your investment plans go haywire.
Trying to control your spending sounds like great advice, but somehow or the other, gets ignored.
What if you could save money without actually having to curb your desires, or for that matter, your lifestyle? Don’t look so astounded! It is very much possible.
The secret to a good life lies in identifying the right tools to grow your money. One of the best way to do this, is with Systematic Investment Plans, more commonly known as SIPs.
To understand what these are. let’s draw a parallel with equated monthly instalments (EMIs). EMIs help you buy goods or services without burning a hole in your pocket. Rather than making a huge one time payments, you can pay for these purchases in pre-decided instalments over a certain specified period. Similar to this concept, SIPs help you invest a fixed amount every month, without having to part with huge sums of money in one go.
To show you how an SIP actually works, let’s examine some of its benefits.
It’s an unforgettable lesson in discipline.
Yes, I know we’re all grown up, independent, free-spirited individuals who don’t need to be monitored or told what to do. But, trust me, when faced with the temptation of going on an impromptu vacation to Goa and sipping on margaritas or buying incredibly expensive speakers when they’re on discount, even the bravest of us all can succumb. I don’t blame you here, even the mighty gods gave in to temptations, and we are mere mortals. To prevent these seemingly harmless habits from turning into something larger, SIPs automatically debits the specified amount from your account on a regular basis, so you have no chance of forgetting to invest.
Power of Compounding:
Everyone says start investing early on in life. But do you know why? It’s because of the power of compounding.
For instance, let’s say you start investing Rs. 10,000 a year when you are 30, and invest for 10 years, earning 9 per cent of interest a year. For a total investment of Rs. 1 lakh, you would have earned Rs 9.28 lakhs. On the other hand, your friend begins saving at 40 years of age and invests Rs 10,000 a year for 20 years, getting 9 per cent of interest a year. Your friend will only get Rs 5.58 lakh–on a total investment of Rs 2 lakh. So, by allowing your money to compound longer, you can be richer than your colleague by Rs 3.70 lakh, even though you saved only half as much as he did. It is SIPs that help you use this power to your benefits.
SIPS helps you tailor your investments:
SIP allows you to decide what you are comfortable investing in. You can select the schemes on your own, the amount you want to invest, and even the number of mutual fund schemes (MF) you want to invest in. For instance, if you fix the number of units of a scheme, then the amount would change on a regular basis, alternatively, if you fix the amount to be spent, then the number of MF units will change. It’s pretty neat!
Benefits of Cost Averaging:
In stock markets, timing is critical.
The value of stock can change from day to day. Investors may have been advised to buy a large number of shares at one go, by paying a lump sum amount. But SIPs work differently; since the prices can fluctuate numerous times within one year itself, there will be times when you will be able to buy more shares for a lesser amount (when prices are down) and times when you can buy less shares for a greater amount (when prices are high). To take advantage of this, SIPs allow you to periodically pick up a few shares every month or every couple of months. At the end of the year, you will have more shares than a lump sum investor and thus, possibility to earn more money.
Therefore, if you too have experienced the feeling of running out of money far too quickly, and never getting the chance to watch it grow, SIPs are what you need. SIPs are an excellent investment option that will result in compulsory savings without you having to make an effort to save large amounts each year, and are ideal for those of us who are novices when it comes to the stock markets, or simply don’t want to be burdened with constantly keeping an eye on our investment portfolio.
Disclaimer: SIP does not assure a profit or guarantee protection against loss in a declining market.The information mentioned above is for illustrative purpose only and is not based on any judgments of the future return of the debt and equity markets / sectors or of any individual security and should not be construed as promise on minimum returns and/or safeguard of capital. Nothing contained herein shall amount to an offer, invitation, advertisement, promotion or sponsor of any product or services. In view of individual nature of consequences, each investor is advised to consult his/ her own Financial Advisor before taking any investment decision.
Mutual fund investments are subject to market risks, read all scheme related documents carefully.