Investing can be overwhelming. The ‘how,’ ‘why,’ ‘when,’ and ‘where to invest’ questions will overwhelm your mind. But you are keen on starting your investment journey. So, where do you start, especially when the market is volatile? Well, go ahead with a great investment tool – SIP.
What is SIP?
SIP, abbreviated for Systematic Investment Plan, is a flexible and hassle-free investment scheme that allows investors to invest a fixed amount on a periodic basis. Under SIP, your money will be invested in mutual funds. You can select the duration (a few months, years, or infinity), amount you want to invest, along with the intervals, and the money will be auto-debited from your account.
Why is SIP a Good Option?
- The investment can be as small as Rs. 500.
- You won’t be penalized by the fund house for missing SIP payment. However, the fund house can cancel your SIP after 3 consecutive misses.
- You don’t have to worry about the market situation or its timing.
- You can stop SIP anytime you want or start a new SIP if you see an increase in income.
- You can diversify your portfolio through SIP.
Two Main Reasons You Should Invest in SIP in Volatile Markets
1. You Can Benefit from Rupee Cost Averaging
Rupee Cost Averaging means that you can average the cost of your investment over time. The benefit of rupee cost averaging is that you will have more units when the markets are low. When the market starts performing well, you will have fewer units.
SIP investments allocate a fixed amount to a scheme, where the units are received against the Net Asset Value (NAV) of the chosen scheme. Since the NAV remains slow during volatile times, you can consider purchasing more units. You will get better value by averaging out your costs during market volatility.
SIP helps lower the cost of your investment. It purchases more units automatically when the prices are low, and when the prices are high, it will purchase fewer units. So, if you continue to invest in SIP during these volatile times, you will accumulate more shares in the long-term.
2. The Compounding Effect
No matter how much you choose to invest in SIP, the magic of compounding will still apply. Every time you invest in SIP, it will get compounded. That means, you can generate a substantial amount of wealth through compounding. To make the most of compounding, you need to start investing in SIP sooner than later.
Setting Up SIP
SIP is hassle-free and easy to set up. You do not even need to open a Demat account. The first step is to fulfill your KYC requirement. Then, register for SIP with a mutual fund scheme of your choice. Once set up, you can forget about setting aside money as it will be auto-debited from your account at intervals set by you.
Lastly, SIP can weather smoothly through a volatile market and is one of the best investments you can make. If you want to know how much you will accumulate by investing regularly use our Wealth-Builder Calculator below, or contact your financial advisor for guidance.