5 Reasons WHY You Should Start SIP At Early Age
Recommendations for investing in Mutual Funds are everywhere, even on roadside hoardings. Over your payment app, with your stock broker, with your bank, etc. are some of the many easiest ways to start a SIP(Systematic Investment Plan) today.
However, if you are reading this article, it is likely that you still have your doubts about what’s so great about this type of investment.
SIP is a plan where investors make regular payments into a mutual fund and can be started for as little as 100 rupees per month. It could be the easiest and safer way to start investing in the stock markets since these are managed by market experts of reputed asset management companies.
If you are considering this form of savings, it is best to start as soon as you can or from right now.
Why you should start ASAP:
1. Start Developing Financial Discipline
If you are in your 20’s, SIPs are a great way to develop the habit of setting aside a portion of your monthly earnings towards your future. Savings is the first towards attaining early financial independence for bigger expenses that will arise in the later years like a down payment for an apartment or purchasing a new vehicle or take the recent example of COVID-19, due to which many people failed to meet their day to day expenditures and livelihood.
2. It comes with a great Flexibility
When you receive a hike in your salary, you can raise your monthly SIP amount. You can also choose to start another SIP in a different category of mutual funds or even stop or pause the SIP (without having to withdraw the funds) or skip an installment or automate your payments.
Once your KYC procedure has been completed with your service provider, adding new schemes to your portfolio is easy. You can start a new SIP at the tip of your finger using your mobile phone at your convenient time.
Make sure to read the scheme documents for any lock-in period requirements and exit load before you decide to make changes to an existing SIP or start a new SIP in the new fund.
3. Averaging
You do not have to worry about entry timings and missed opportunities with SIPs like you would in the case of individual stock investments, FD (fixed-deposit), or RD (recurring-deposit) (maybe you can miss higher interest rates opportunities).
The ‘cost of acquisition’ is as crucial as the selling rate to make maximum profit out of any investment.
Since there is a fixed amount invested every month, it allows for “averaging” i.e., when the market is trading high, with the same amount of money you can purchase fewer units, but when markets fall or at low, more units will be added to the portfolio, this will help in creating a balance and your price is average of all long time investment done.
In this way, you do not have to worry about volatility in the markets and can stay committed to your long-term SIP.
4. The Power of Compounding
Like any investment, especially those linked to the markets, the more time you stay invested, the more amount of fortune you can make.
Over time, when the cycle continues, the compounding effect ensures you make exponential gains.
The earlier your start your SIP and the longer you stick to it, the greater the return on investment (ROI).
5. Compare Performance
The returns earned by every mutual fund are public information. You can visit the asset management company’s website or numerous finance-based websites that allow you to compare the performance of two funds.
Based on your financial goal and expense ratio in each fund, you can choose a SIP in a mutual fund with the kind of track record that you wish to see for your own investment.
These websites also provide SIP calculators for you to arrive at a figure that you should set aside in monthly contributions based on your financial goal.
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Disclaimer: The article is purely informational and is not a solicitation to buy, sell securities mentioned in the article. EGrasps and the author do not accept culpability for losses and/or damages arising based on information in this article.
