MUTUAL FUND SIP: Drop by Drop, Little but steady, Grows to Wealthy!!
A Mutual Fund Systematic Investment Plan (SIP) is proving to be a very good philosophy of investment in current scenario. Let’s try to understand how a little regular investment matters in creating wealth in long time and realizing dreams!!
There is a famous quote, “Drop by Drop forms the ocean.” Similarly, every paisa makes a rupee and each rupee invested in right option and at right time will help you to create wealth in life. But how can we be convinced that the Mutual Fund is the best option to invest and again SIP is a best way to invest and earn better returns then a Lump sum investment?
So let’s go through some facts to understand:
Fact 1: Over a long term horizon, equity investments have given returns which far exceed those from the debt based instruments. They are probably the only investment option, which can build large wealth.
Fact 2: In short term, equities exhibit very sharp volatilities, which many of us find difficult to stomach.
Fact 3: Equities carry lot of risk even to the extent of loosing ones entire corpus.
Fact 4: Investment in equities requires one to be in constant touch with the market.
Fact 5: Equity investment requires a lot of research.
Fact 6: Buying good scrips require one to invest fairly large amounts.
Fact 7: Identifying the right time to invest in equities market is hard as we can not predict the same. But also we know that over a long term horizon, equity investments have given wining returns.
Fact 8: It is difficult to maintain discipline in terms of regular investments as we can not predict market, and therefore also can not decide the amount to invest and choose right scrip(s) to invest at a decided time on regular basis.
Fact 9: Sometimes it irritates us when we even try to focus and trade on regular basis and also disturbs or diverts our prime economic activity due to tracking markets, calling brokers and transacting frequently, checking bills of transactions, issuing payment cheques, reviewing valuations and many more points to irritate…
So, Systematic Investing in a Mutual Fund is the answer to preventing the difficulties of equity investment for a busy person and still enjoying the high returns. And it makes all the more sense today when the stock markets are booming.
And in following ways a Mutual Fund SIP providing a very good philosophy investment to realize your dreams!! :
1. It’s an expert’s task – Let’s leave it to them:
Management of the fund by the professionals or experts is one of the key advantages of investing through a mutual fund. They regularly carry out extensive research – on the company, the industry and the economy – thus ensuring informed investment. Secondly, they regularly track the market. Thus for many of us who do not have the desired expertise and are too busy with our vocation to devote sufficient time and effort to investing in equity, mutual funds offer an attractive alternative.
2. Market timing becomes irrelevant:
One of the biggest difficulties in equity investing is WHEN to invest, apart from the other big question WHERE to invest. While, investing in a mutual fund solves the issue of ‘where’ to invest, SIP helps us to overcome the problem of ‘when’. SIP is a disciplined investing irrespective of the state of the market. It thus makes the market timing totally irrelevant. And today when the markets are high, it may not be prudent to commit large sums at one go. With the next 2-3 years looking good from Indian Economy point of view, one can expect handsome returns thru’ regular investing.
3. Does not strain our day-to-day finances:
Mutual Funds allow us to invest very small amounts (Rs 500 – Rs. 1000) in SIP, as against larger one-time investment required, if we were to buy directly from the market. This makes investing easier as it does not strain our monthly finances. It, therefore, becomes an ideal investment option for a small-time investor, who would otherwise not be able to enjoy the benefits of investing in the equity market.
4. Reduces the average cost:
In SIP we are investing a fixed amount regularly. So, we end up buying more units when the markets are down as the NAV is low and less number of units when the markets are up as the NAV is high. This is called rupee-cost averaging. It has been general tendency that, we would stay away from buying when the markets are down and we tend to invest when the markets are rising, so it would be a non or less profitable decision. Were as SIP works as a good discipline tool as it forces us to buy even when the markets are low, which actually is the best time to buy. And this way the investments get averaged out and also the investment risk get reduced when markets are volatile.
5. Power of Compounding:
Investments early in life helps to get the benefit of compounding on invested amount in long term. The more early we start the more market conditions we would benefit from and get better returns. So, thru SIP in an early age an investor can start investing nominal amount consider Rs 100, Rs 500 or Rs 1000 of his savings to get the benefits of compounding by investing in mutual funds.
6. Ease while Investing:
We can choose the option of Auto debit/ECS from our bank account while filling the SIP form of any monthly/quarterly date or give postdated cheques for the amount we wish to invest in Mutual Fund schemes. And this way SIP develops a habit of regular savings and investments from regular income in us with ease.
7. Helps to fulfill our dreams
The investments we make are ultimately for some objectives such as to buy a house, children’s education, marriage etc. And many of them require a huge one-time investment. As it would usually not be possible raise such large amounts at short notice, we need to build the corpus over a longer period of time, through small but regular investments. This is what SIP is all about. Small investments, over a period of time, result in large wealth and help fulfill our dreams & aspirations.