Stay On Course With Your Investment

Ashish Golechha
Mutual Fund Distributor

When it comes to investing in equities for the long term, there is no better way than the humble systematic investment plan (SIP). SIP is an investment route offered by mutual fund houses wherein one can invest a fixed amount in a mutual fund scheme of one’s choice at regular intervals, mostly monthly, for ‘n’ number of years. The beauty of SIP is that while it is not an investment product in itself, what it does is that it facilitates one’s investments in the equity market systematically. By making regular investments in the markets, one gets the opportunity to inculcate a sense of financial discipline, which ultimately aids in achieving various financial goals easily.

Why SIP?
The simple answer to this question is that by investing through SIP one does not have to face the burden of making a conscious investment each and every month. All an investor has to do is to give a mandate to a bank to deduct the pre-defined amount on a specific date every month. Hence, there is no element of forgetting to invest. As the equity market tends to be volatile, if one were to voluntarily try and invest every month without a SIP mechanism, there is a high chance that the market movements can impact your decisions. Instead, if you are investing through a SIP, you keep investing irrespective of the market movements. As a result, an investor would have invested across a market cycle, capturing both the lows and highs of the market.

This means, as an investor you get the benefit of ‘rupee cost averaging’. Another enabling factor is the minimum amount required for investment is as low as Rs 100 for certain schemes while for most others it is Rs 500. This means an investor need not wait till accumulating a sizeable fund just to kick-start an investment journey. This brings us to another major benefit i.e. the power of compounding. As you stay invested over a long period of time, you get the power of compounding on your side. This means that the return you have already earned on an investment in turn acts as an investment itself, thereby increasing the final return. Over longer periods of time, this compounding effect has the potential to turn a few thousands each month into several lakhs over the years.

The SIP Strategy
Many investors during phases of low or negative returns make a very costly mistake when they decide to discontinue their SIP investments, especially in a market downturn. As a result, such investors lose on the opportunity to accumulate more units for the same price paid. The other aspect to be mindful of is to increase the SIP amount in tandem with the increase in salary. Most investors tend to keep their SIP amount static despite the rise in disposable income. As a means to help investors in increasing the SIP amount of an ongoing SIP, fund houses today offer the feature of SIP top-up. This is a facility where the investor has the option to increase the SIP amount by a fixed amount at pre-defined intervals, say annually. By signing up for a top-up, you will ensure that your savings too rise with time.

Selecting the Right Fund

There are a variety of mutual funds available spread across various asset classes. Apart from starting a SIP, it is also important that you invest in a fund which has the potential to aid you in achieving your financial goals. Otherwise, the result at the end of it all could be sub-optimal. If you are an investor who is not comfortable with equity market volatility, try hybrid or debt category mutual funds. For goals which are decades away, equity mutual funds could prove to be very helpful. Here too, there are a plethora of equity mutual funds to choose from. Based on your risk appetite, you are free to choose the category and invest accordingly. Being invested in the right category with the right SIP amount is half the battle won. To conclude, investing is a slow and steady game where systematically investing in the right fund over decades has the potential to be a game-changer in your journey towards financial freedom.

The writer is a Mutual Fund Distributor  Email: ashishgolechha@gmail.com