Money saved is money earned, but if the same money invested is equal to it multiplied. There are many investment avenues available in the market, to suit your lifestyle and financial bearings, each coming their own set of advantages and risks involved with them.
Systematic investment plan (SIP) is great option to invest a fixed amount in a mutual fund at defined intervals. The time period to invest could be monthly or quarterly, with the minimum amount for most of the mutual funds being Rs. 1000 per month.
Following the SIP investment planner is the best way to reduce the susceptibility to market fluctuations. A very powerful tool that channelizes capital preservation and also it turns into substantial wealth creation in the long run.
The time span is as per the scheme you invest under. However it is advisable to invest in a long term plan so as reap maximum benefits. As in the case of SIP you will be investing irrespective of the market conditions. Therefore ensuring the cost averaging to play a vital role and giving you benefits from volatility.
When you buy more units at a lower price due to a fall in the market and at a higher price some lesser number of units due to the soaring market, you average out your investment costs. Let us try to make it simpler, suppose a monthly SIP is for Rs. 10,000 and the funds all Net Asset Value is Rs. 10. The result is 1000 units being credited to you. However the following month on account of fluctuating market conditions, if the funds NAV falls to Rs. 5 you will get Rs. 2000 units. Thus lowering your average purchase cost. A SIP helps you buy more when the stock market is falling and less when it is rising.
Investors keen on building wealth SIP is an excellent tool. It doesn’t demand for a one-time lump sum investment. This pattern of regularly investing helps build discipline in investors. The best part is you can go for a SIP according to your goal- your child education, marriage of children or your investment plan.
SIP proves to be most effective when buying equity-based funds. The NAVs of these funds can vary widely. Through rupee cost averaging a SIP can make this volatility work for your benefit. However rupee cost averaging may not work well if the market keeps on an up-trend.
Investors of all age can make use of Systematic Investment Plan. During weak market conditions never discontinue a SIP or even when the market falls steeply, as the very purpose of investing in SIP shall be defeated. SIP is apt for an investor who does not have a chunk amount to invest or is sceptical about the risk involved.