Invest Early, Invest Wisely

Every investor needs to plan his or her investment based on individual risk appetite, return expectations and investment horizon. While each investor will have different investment goals, the objective of any invest-ment will be to achieve risk-adjusted, inflation-beating returns. When investing in the stock market, an investor needs to be prepared for volatile returns across various time periods. This is because equity returns tend to be irregular in nature since stock market returns are back-ended rather than front-ended. Com-pounding magic works only when investment is done with a long-term approach.

The ground rule is that time in the market is more important than timing the market. While volatility will be an inevitable part of an investor’s journey, disciplined and systematic investment over long periods of time will help investors to ride out volatility in an easy and convenient manner. Therefore, the ideal and simplest way to participate in the stock market is through systematic investment plan (SIP). By investing through SIP into equities, an investor can eliminate the risk of timing the market by staying invested through an entire market cycle.

Once a fund is selected for investing, systematic participation will enable an investor to accumulate more units during the bear market and relatively fewer units during the bull market. When it comes to achieving financial goals, fund selection, optimal allocation and periodic review are the three elements that have an important role to play. History is replete with examples of how investors who have stayed invested in equities over complete market cycles have been successful in generating disproportionate wealth.

Benefits of SIP

1. Start Small, Invest Early : An investor should always start his or her investment journey with small amounts. Staying invested for longer periods is what matters when it comes tocreating wealth. Let us understand this with an example. The following table illustrates how longer the time you spend in the market by staying invested will fetch you better rewards at the end of the journey.

2. Rupee Cost Averaging : By investing small amounts, year after year and across market cycles, an investor will manage to decrease the cost per unit. It is often seen that some investors tend to stop or pause their SIPs when the markets correct. It is only the discipline to keep investing irrespective of the market conditions which will help you to accumulate more units, especially during times of a market correction.
3. Discipline through Periodic Allocation : SIP automates your investment journey with daily and monthly options.
4. Benefits of Compounding : Investors often tend to provide undue attention to return in terms of percentage during their investment journey. The point to be stressed here is that time i.e. the number of years invested will create more wealth than chasing returns since staying invested over long periods triggers compounding benefits which will lead to colossal gains. Therefore, always have a long-term approach when investing in equities.
5. Flexibility and Diversification : With flexible investment horizons, SIP allows an investor to diversify investments across different categories of mutual funds.

Creating Wealth through SIP

An investor should put into place a SIP to meet his various financial goals. Consider, for example, Mr. X beginning to invest Rs10,000 every month at the age of 30 and Mr.Y, on the other hand, starting on his investment journey with an identical amount at the age of 35. At the time when both of them turn 60 years, at the rate of 12% return, Mr. X would have created a corpus of Rs3.53 crore and Mr. Y’s corpus amount would only be Rs1.90 crore.

Therefore, sow the seeds for wealth creation today by investing systematically.

Getting Started with SIP

✓ Chart your financial goals, which should be specific and attainable.
✓ Set a timeline and decide when you need money; this will be the investment tenure.
✓ Decide how much you need to invest. With the help of a SIP calculator, figure out the amount you need to invest  regularly to accomplish your financial goals.
✓ Once the investment amount and investment horizon is decided, start the SIP journey without any further delay.

To conclude, equity investing through SIP is an ideal investment strategy for long-term wealth creation

The writer is a MD & CEO, Integrated Enterprises ( India) Pvt Ltd
 Email: Sriramv@integratedindia.in
 Website: www.integratedindia.in