Investing for your dreams through SIP

Nimesh Shah

When it comes to meeting long-term financial goals, there are no two doubts about the necessity to invest in equity markets in order to harness the growth potential extended by equities as an asset class.

But investing in equities is fraught with risks and it is often this fear which keeps investors at bay. However, there are ways and means to approach investing into equities. And one of the simplest routes to investing into equities is via the mutual fund, wherein an investor has the option to regularly invest small sums of money, which is popularly known as Systematic Investment Plan (SIP). Given below are three most distinguishing factors of investing through SIP:

Less is more

When it comes to investing via SIPs, the maxim small is big holds true. Here, one has the option to invest small sums of money over several years, thereby inculcating the financial discipline and building the desired kitty, in a systematic manner. The trick is to stay dedicated to one’s investment plan. You can start an SIP for an amount as low as Rs 500 or Rs 1,000 per month. If not for such a tool, a potential investor falls prey to endlessly awaiting for a favourable market time to invest.

Any time is good time

It is always a good time to start an SIP, irrespective of the market levels. Not only does it help you stay invested, but also aids in the process of rupee cost averaging, which is a key component in creating long-term wealth.  For instance, you are investing Rs 5,000 every month. When the unit price is Rs 20, you will get 250 units because 5,000/20 = 250. If the markets dip and unit price drops to Rs 10, you will be allotted 500 units, as 5000/10 = 500. On the other hand, if markets rise and unit price hikes to Rs 25, you will be allotted only 200 units. It all sums down to your average cost being much lower than the average NAV, thus striking a balance in a volatile market. This way you don’t need to look at ‘timing’ the market while investing.

Flexibility

When investing through SIPs, you can decide the periodicity and tenure of the SIP as per your convenience. But the trick is to know the right amount and the right fund to pick, which again depends on individual goals. We live in a world where inflation holds the potential to cut into one’s kitty. Therefore, apart from starting an SIP, it is imperative to review once in a while, if the current SIP amount will help create the targeted amount, in spite of inflation.

Do more with SIP

Starting an SIP and then continuing the same amount for the entire investment duration, especially when it comes to meeting objectives such as retirement, is an often observed trend. However, investors fail to realise that with the increase in disposable income, the SIP amount should also be increased to meet the increasing lifestyle expenses. This does not necessarily mean starting a new SIP.

Mutual fund houses today offer a facility known as SIP Top-Up, wherein an investor has the opportunity to increase one's existing monthly SIP investment amounts. This increase in SIP amount can occur at a pre-defined frequency and amount/percentage. The point to be noted here is there is no additional paper work required every year. This ensures that you reach your targeted amount well in time, if not before.

A small increment every year can go a long way in helping one lead a sound financial life. Incase if you need help in deciding the SIP or SIP Top-Up amount and the investment duration required for a targeted amount, there are calculators available online, which can be of help.

The writer is MD and CEO, ICICI Prudential AMC. The views expressed in this article are personal