The Power of SIPs
Understand how you can use the Power of SIPs to your advantage
Systematic Investment Plan, or SIP as it is commonly known, is a methodology offered by Mutual Funds wherein you can invest a certain amount in a mutual fund scheme periodically at fixed intervals. It helps in investing in a disciplined manner without worrying about market volatility and timing the market.
Why is an S.I.P. ideal for mutual fund investing?
SIPs are ideal for developing the investing habit, especially if you are investing for the first time & towards long term goals.
You can start SIPs with a very small denomination such as Rs. 100 & gradually top them up with increase in your salary over time. The best part about SIPs is that you don’t have to worry about market movements, thanks to rupee cost averaging.
What is rupee cost averaging?
When you buy mutual fund units via SIP payments every month, you buy them at a different NAV (Net Asset Value) each month. Rupee cost averaging helps average out the cost of these units.
How does it help you?
When the cost of buying units is averaged out, you end up buying low & selling high — the ideal way to invest in mutual funds. Most investors on the other hand, buy high & sell low, which increases their average cost of investing & consequently reduces returns.
But, how is it all actually happening?
Rupee cost averaging helps to balance out the impact of market volatility. You may wonder how? Consider the following example, wherein say you invest
Rs. 1000 monthly for 12 months, via SIPs, you can see how the units allotted are different each month.
You can see how the units allotted are different each month due to market conditions.
Essentially, investing via SIPs helps you:
- Buy more → when markets are low &
- Buy less → when markets are high
This way you get maximum value for your investments in volatile markets, and over the long term. This is the power of SIP to build wealth over time.
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