Wealth Creation Through SIP

The positive enthusiasm surrounding the Indian economy is evident in our capital markets, which are reaching new milestones. One critical aspect of the money flows has been through SIP into mutual fund schemes – the latest staggering figure of Rs 23,000 crore gross inflows has been a record to date. The Net SIP inflows (fresh minus redemption) is also equally impressive. [EasyDNNnews:PaidContentStart]

A significant portion of new mutual fund investors, especially in the post-pandemic era, has begun participating in the capital markets through the SIP route. While we at our firm have always believed in the SIP mantra, the latest data has motivated us to pen down our conviction of SIP as a wealth creation tool for investors – new and seasoned alike. 

Defining SIP
A systematic investment plan (SIP) is a disciplined way to invest a fixed amount of money at regular intervals (e.g. monthly) in a mutual fund scheme. This approach helps in averaging out the investment cost and reduces the impact of market volatility 

Benefits of SIP
1. Disciplined Investing: SIPs encourage regular investment, which helps in developing a disciplined approach to saving and investing.
2. Rupee Cost Averaging: This is possibly the single biggest factor giving wings to your returns. By investing a fixed amount regularly, you buy more units when the prices are low and fewer units when the prices are high, averaging out the cost of your investments over time.
3. Compounding Returns: This point is equally important. Investing consistently over a long period allows the power of compounding to work in your favour. The returns earned on your investments also start earning returns, leading to exponential growth.
4. Affordability: Since you are investing smaller amounts regularly, it’s easier to manage compared to making a lumpsum investment. This is particularly important for an investor who typically wishes to start small. It is equally important for a small salaried individual or a businessman who wishes to park monthly excess into investments.
5. Flexibility: SIPs can often be adjusted or stopped according to your financial situation, and you can increase or decrease the amount invested as needed. This helps investors to factor in any future changes in a financial situation good or worse, and thereby alter the allocation.
 6. Risk Mitigation: Regular investments reduce the risk of investing a large sum at an inopportune time, thus mitigating some market risks. 

Secret Sauce of SIP
1. Start Early: The earlier you start investing, the more time your money has to grow. This is crucial for maximising the benefits of compounding. We recommend using SIP as a savings cum investment tool to all budding professionals and businessmen alike and allocating a part of their savings voluntarily towards SIP.
2. Invest Regularly: Consistency is the key. Even small amounts invested regularly can grow significantly over time. We also recommend utilising the step-up SIP option available with many of the mutual fund houses through which you may increase your monthly contributions ad hoc.
3. Choose the Right Fund: Select mutual funds based on your risk tolerance, investment horizon and financial goals. Diversify your investments to balance risk. Along with numerous online tools available independently and on mutual fund house websites, an investment professional may also be the right person to chart out the same for you.
4. Monitor and Adjust: SIP investments do not need daily monitoring. However, review your SIP performance periodically or as agreed with your advisor since any required adjustments may auger well. As your financial situation changes, you might want to increase your SIP amount or switch funds depending on macro or micro elements.
5. Stay Invested: Avoid the temptation to withdraw investments based on short-term market fluctuations. Longterm investments tend to be more rewarding and that’s the secret sauce of success in your SIP journey. 

Key Considerations for your SIP Journey
■ Risk: Mutual funds come with varying levels of risk, depending on the type of fund. Understand your risk profile before investing. An unbiased view without reference to past returns is important.
■ Expenses: It is prudent to be aware of the expenses in your schemes. However, long-term compounding returns generally outweigh this factor.
■ Goals: Align your SIP investments with your financial goals such as retirement, marriage, child education or buying a new home. 

■ Email : [email protected] ■ Website : www.saibalbiswas.in 

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