Inculcate The Discipline Of Savings Through SIP Investments

To generate wealth, it is essential to invest smartly. Most investors believe in a long term investment strategy where they continue investing at regular intervals till their investment objective is achieved. Financial planning is an essential factor that should not be neglected by individuals. Though the term may sound complicated, financial planning is nothing but understanding the art of managing your money. Once you make a detailed list of your short term and long term financial goals the next step investors need to take is understand their appetite for risk. Even today, several investors prefer conservative investment schemes solely because they offer fixed interest rates. The problem with traditional investment avenues is that they offer very low interest rates. Investors cannot entirely depend on conservative scheme to achieve their life’s long term financial goals.

If you are a young individual with an aggressive mindset towards investing and want to earn above average returns by systematically investing in market linked schemes, you can consider investing in mutual funds. Mutual funds are a modern investment avenue that have constantly produced higher returns as compared to traditional investment schemes. These are a pool of professionally managed funds that offer active risk management. A mutual fund is known to offer in a diversified portfolio of securities thus giving investors the unique opportunity of seeking capital appreciation from various sectors and industries. 

What is SIP investing?

Before SIP, one could only make a onetime lumpsum towards mutual funds. The problem with onetime lumpsum investment was that your entire investment amount was exposed to market’s volatile nature right at the beginning of the investment cycle. On the other hand, a Systematic Investment Plan (SIP) is an easy and convenient way to invest in mutual funds. Investors need to be KYC compliant in order to invest in mutual funds via SIP. In SIP, instead of making a lumpsum investment the investor decides an amount he or she comfortable investing at regular intervals. When an investor starts a SIP in mutual funds, every month on a fixed date, a predetermined amount is debited from your savings account and electronically transferred to the mutual fund. 

Does SIP help in inculcating the discipline of regular investing?

There are several reasons that make SIP ideal for long term investment. The problem with most investors is that they aren’t able to remain committed to their investments and hence, aren’t able to create wealth. SIP can help inculcating the good habit of systematic and regular investing. SIP allows auto debt, which means the monthly investment amount is electronically transferred from your savings account and electronically transferred to the fund. One doesn’t even need to manually invest in mutual funds. This assures that investors continue to invest without breaking the look. Long term SIP investments might help investors achieve their life’s long term financial goals like building a retirement corpus, going to a world tour with their better half, buying a weekend home, etc. 

Anyone who wishes to achieve these long term financial goals should start investing in mutual funds via SIP. Regular investing also means your small SIP amounts stand a chance of earning interest and benefit from compounding over the long term. Power of compounding in mutual funds refers to interest earned on the interest earned from the principal investment amount. The truth is that we are going to need more money to survive in future than we need in our young age. And to build a commendable corpus for future financial stability, it is better to start a SIP in mutual funds. One can even refer to an online SIP calculator in order to determine how much money you need to invest at regular intervals for creating wealth.