Save As You Earn
The first salary is a great milestone in each person’s life. The experience of being independent brings great thrill and joy. At this stage, it’s important to start saving to accomplish your financial goals. Buying a dream home, international travel, marriage, child’s education, retirement, etc. require a substantial amount of regular savings. Systematic Investment Plan (SIP) is one of the best routes to plan your savings and investments that sync with your income flow. Start a SIP as soon as you start earning to meet your long term financial goals.
Sooner The Better
It’s important to grow your savings over a period of time. SIPs provide an advantage of disciplined investments along with the power of compounding. Compounding gives a multiplier effect to your savings which might result in greater returns in the long term. So in order to leverage that, the sooner you start a SIP; the more beneficial it will be.
A younger investor has the ability to take more risks which may generate greater returns. Investing in equity-oriented mutual fund SIPs with a long-term investment horizon may help him achieve greater capital appreciation in the future due to the power of compounding. He can swiftly achieve his financial goals at different stages of life.
On the other hand, an older investor becomes risk-averse. At this stage, his primary goal is capital preservation or retirement income. He may opt for dividend payouts, reducing the power of compounding.
Combat Market Volatility
The most difficult task faced by investors is to time the market and combat market volatility. SIP may help overcome these limitations with great ease and flexibility. One can select any amount (Min amount Rs 500), frequency (weekly, fortnightly, or monthly), and period (number of SIP installments). SIPs could provide the benefit of average cost pricing in a falling market scenario. The investor accumulates more number of units at a lower average cost
Conclusion
SIPs are considered to be wealth creators when invested with a long term horizon. Early investments through SIPs help in diversifying your investment portfolio and provide an opportunity to earn real returns that can beat inflation. Plan your SIP investments by knowing the power of compounding using the Wealth-Builder Calculator below. Or contact your financial advisor for further assistance.
