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Tata Capital > Blog > Wealth Services > Systematic Investment Plans (SIPs) Top Things To Know About It

Wealth Services

Systematic Investment Plans (SIPs) Top Things To Know About It

Systematic Investment Plans (SIPs) Top Things To Know About It

Small drops of water make the ocean! Systematic investments are similar to such small drops of water. It is a disciplined and consistent means to invest in mutual funds. If you are a novice investor and interested in gaining exposure to mutual funds, then this is the best means to start SIPs in funds of your preference. Here are the top things that you should know before investing via SIPs:

1. Start small to build a huge corpus in the long term:

SIPs are a perfect way to start your journey in mutual fund investments. They are akin to baby steps which eventually may turn into a marathon runner. You can start your journey with as less as Rs. 100 per month and, by staying consistent, build a sizeable corpus over the long term.

Tip: It is also integral to note that it is always a good practice to increase your quantum of investment at regular intervals.

This will align better with your increasing income and your growing financial needs or goals.      It’s also one of the simple ways to tackle the impact of inflation on your financial goals.

2. Induces discipline and consistency:

SIP induces discipline and consistency, which is a very difficult trait to inculcate. This is the most important virtue whilst investing in markets. To weather through various market cycles and continue to stay invested is the secret to building wealth for your financial goals.

Consistent and regular investment also eliminates the need to time the market. This is extremely beneficial for any investor beginning his / her journey in mutual funds and equities.

Tip:
To make the most of your SIP, top it up periodically to increase the corpus substantially.

For example, say you invest Rs. 20,000 per month at a 12% rate of return for 20 years. This way, you can create a corpus of approximately Rs 2 crore with an initial investment of only Rs. 48 lakhs.

Instead, if you start topping up your SIP by just 5% annually, you invest an additional Rs. 1000 per annum for the entire duration of the SIP, you will end up with a corpus of approximately Rs. 3.31 crore with a total investment of Rs 70.8 lakhs. You create an additional corpus pool of Rs. 1.31 crore by topping up your SIP by only Rs. 1000 annually.

3. Rupee cost averaging:

The main benefit of SIPs is the rupee cost averaging. By investing across the market cycle, the cost per unit of the fund is averaged. During the uptrend, if the per unit cost of the mutual fund were Rs. 12, and during the market downtrend, if the per unit cost were Rs. 8, then the average cost per unit would be Rs. 10.

Further, it can be understood that during an uptrend you would end up buying lesser units, with the same amount in a downward trending market the number of units bought would be higher. 

Tip: Rupee cost averaging works best in the long run. So, do not have a limited timeframe for your SIP portfolio. Keep investing in SIP for the long term to generate maximum returns.

4. Hassle-free investment mode:

SIPs are not just easy on your pocket. They are also extremely flexible and convenient. SIPs can be subscribed to online, and the payment is auto-debited for the predetermined period. If due to unforeseen circumstances, you are unable to continue your SIPs, then you could stop the SIPs at your will.

Tip: However, it is advised that you stay committed to your investment over the long haul, especially during the turbulent and troubled times in the equity markets.

5. Numbers speak louder than words:

Well, the actual saying is, “actions speak louder than words”. However, it's facts and numbers which deliver a greater impact when compared. Here is an illustration of how powerful a SIP can be over the long haul.

Monthly instalmentTenure (Years)Rate of returnTotal InvestmentCorpus built
Rs. 10001512%Rs. 1.8 LakhRs. 3.25 Lakh
Rs. 20001512%Rs. 3.6 LakhRs. 6.5 Lakh
Rs. 50001512%Rs. 9 LakhRs. 16.23 Lakh
Rs. 100001512%Rs. 18 LakhRs. 32.5 Lakh

Source: TATA capital (SIP Calculator)

Conclusion:

It is apparent that by staying invested via SIPs, you can build a sizeable corpus over the long haul. Hope this encourages you to start your journey towards investing in mutual funds via the SIP route. You can always reach out to experts at TATA Capital Wealth to help you choose the right funds to invest in from the slew of options that are available in the market.

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