You Earn Regularly…
You Spend Regularly…
Do You Invest Regularly?
Systematic Investment Plan (SIP), is a is a simple and time honored investment strategy for accumulation of wealth in a disciplined manner over long term period.
SIP or systematic investment planning is method through which you can invest in mutual funds through small and periodic installments. Infact you can invest as low as Rs. 1000/- on a monthly basis. Moreover you can also select the tenure of the instalments.
The systematic style of investing is actively promoted by practically everyone who gives advice about fund investing. Whether these are fund companies, advisors, or the media, an SIP is supposed to be the holy grail of mutual fund investing. Unfortunately, there seem to be a growing number of investors who have cottoned-on to the notion that SIP investing is some sort of magic. There are two widespread misconceptions about SIPs: some investors believe that an investment through the SIP route cannot have poorer returns than a lump-sum investment made at the same time that the SIP was started. The other, more extreme point-of-view is that you can’t make a loss in an SIP, no matter what. Both are equally wrong.
The basic idea behind an SIP is that while the general direction of an investment (a fund or even a stock) is upwards, it is not possible to reliably predict the actual fluctuations that it may undergo as part of its general trend. Instead of trying to time one’s investments, one should regularly invest a constant amount. As time goes by and the investment’s net asset value (NAV), or market price, fluctuates, it will automatically ensure that when the NAV was low, you ended up purchasing a larger number of shares or units. Eventually, when you want to redeem your investment, all the units are worth the same price. However, because your SIP meant that you bought a larger number of units whenever the price was low, your returns are higher than they would otherwise have been.
There is another reason why SIPs make sense. They are a great way to override the normal psychological instinct to stop investing when prices fall. In my experience, this is the real value of SIPs. The normal tendency is to invest more when prices are high and to stop investing when prices fall. This is the opposite of what is the most profitable way of investing. SIPs force you to follow the opposite approach, much to your eventual benefit.
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