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SIP: Investing Systematically for Financial Prosperity

SIP allows you to automate saving and investing for various financial goals

Tuesday September 29, 2020 10:11 PM, ummid.com News Network

SIP Installment

Given the uncertainty regarding the spread of the Coronavirus Pandemic, volatility in the financial markets is expected to prevail in the near term. In such a condition, Systematic Investment Plans, commonly known as SIP, emerge as a preferred investment option.

What is SIP?

SIP is an investment vehicle offered to individuals wherein an investor can invest a particular amount in their desired mutual fund scheme at predefined periodic intervals. The specified amount gets debited from the investor’s account and is credited into the fund’s account.

SIP allows you to automate saving and investing for various financial goals. When it comes to investing, investors either make a lump-sum investment or choose to invest a fixed amount periodically. The habit of Systematic Investment Plan (SIP) allows you to invest consistently into debt or equity instruments, irrespective of whether the market is going up or down.

Benefits of SIP

SIP not only provides complete freedom and convenience to invest as per your own comfort but also aids in inculcating financial discipline. As a result, this habit becomes instrumental in helping an investor to stay on track to achieve their financial goals.

Investors must note that SIP is not an investment product in itself, but a powerful option to facilitate investments in the market systematically.

Secondly, when investing through the SIP mode, one need not worry about the vagaries of the financial markets. Markets, especially equity markets, can be quite volatile. At any given point of time, there is a possibility of the market going up or down. If you try to invest on your own on a regular basis, there is a high chance that the market movements can weigh in heavily on your decision making ability. Instead, if you are investing through a SIP, the investment goes on irrespective of the market movements.

More importantly, when the market is trending lower, one gets the opportunity to accumulate higher units per SIP installments. Conversely, in bullish markets, for the same installment, one will get lower number of units per month. However, as the market moves through cycles, a disciplined investor benefits from the overall increase in portfolio valuation.

The next important reason why SIP is a must lies in its ability to make you a disciplined investor. Most investors enthused by the market returns will start investing but fail when it comes to persistency i.e. in investing regularly. Regular investment, over an extended period, is of paramount importance when it comes to achieving long term financial objectives.

The very nature of SIPs is as such, that it adds more discipline to your investment journey. An amount fixed by you automatically gets invested in the mutual fund scheme of your choice, eliminating the need for you to make the monthly investments yourself.

Lastly, the power of compounding. In simple terms, this means that the return that 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 in to several lakhs.

 

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