Reasons Why You Should Start a SIP: Are you looking for a way to grow your money without much effort? SIPs are a good option. SIP stands for Systematic Investment Plan. It is a way to invest in mutual funds regularly, with a fixed amount of money. SIPs are popular in all over the World because they are easy to understand and can help you earn good returns over time.
I will share 3 compelling reasons why you should consider starting a SIP, backed by practical examples that highlight the benefits. Let’s explore how SIPs can pave the way to a financially secure future.
Start as Low as Rs. 100
One of the biggest advantages of SIPs is that you can start with a small amount, as low as Rs. 100 per month. This makes it a great option for people who are just starting to invest or who have a limited budget.
Even if you can only afford to invest a small amount each month, over time your SIP will grow into a significant sum. This is because of the power of compounding.
Lets Understand with some practical example,
Ria is a young professional who wants to start investing. She doesn’t have a lot of money to invest, so she decides to start with a small amount of Rs. 1500 per month. She invests this amount in a SIP, which means that she invests the same amount every month, regardless of the market conditions.
Ria’s investment might seem small, but it can grow over time through the power of compounding. Compounding is the process of earning interest on your interest. This means that your investment grows not just from the amount you invest, but also from the interest that your investment earns.
If Ria invests Rs. 1500 per month for 30 years, with an annual return of 10%, her investment will grow to Rs. 1,35,487. This is because of the compounding effect.
The power of compounding can be seen in the table below:
| Year | Investment | Interest | Total |
|---|---|---|---|
| 1 | Rs. 1500 | Rs. 150 | Rs. 1650 |
| 2 | Rs. 1500 | Rs. 165 | Rs. 1765 |
| 3 | Rs. 1500 | Rs. 181.5 | Rs. 1946.5 |
| … | … | … | … |
| 30 | Rs. 1500 | Rs. 5234.9 | Rs. 135487 |
SIPs are a great way to invest for your future, even if you have a small amount to invest.
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Grab the Benefits of Compounding
Compounding is the process of earning interest on your interest. This means that your investment grows over time, not just from the amount you invest, but also from the interest that your investment earns.
Alok is a young man who wants to start investing for his future. He doesn’t have a lot of money to invest, but he is willing to invest regularly. He decides to start a SIP with Rs. 5000 per month.
Alok invests Rs. 5000 every month for 15 years. Over this time, his investment grows through the power of compounding. This means that his investment earns interest, and the interest is then reinvested. This causes his investment to grow at a faster rate.
By the time Alok reaches the age of 40, his SIP has grown to Rs. 1,27,544. This is because of the compounding effect. The growth is not just from his contributions, but also from the accumulated returns.
Alok’s story shows the power of staying invested for the long term. If you invest regularly and for the long term, your investment will grow even if the market goes up and down in the short term.
Here is a table showing the growth of Alok’s SIP
| Year | Investment | Interest | Total |
|---|---|---|---|
| 1 | Rs. 5000 | Rs. 250 | Rs. 5250 |
| 2 | Rs. 5000 | Rs. 275 | Rs. 5275 |
| 3 | Rs. 5000 | Rs. 300 | Rs. 5300 |
| … | … | … | … |
| 15 | Rs. 5000 | Rs. 10,125 | Rs. 127,544 |
As you can see, the interest earned each year increases as the investment grows. This is because the interest is calculated on the total amount invested, including the interest that has already been earned.
Best Market Volatility
SIPs can also help you ride out market volatility. When the market goes down, you are buying more units at a lower price. This means that your average cost per unit will be lower, and you will benefit when the market goes up again.
Raj is an investor who invests Rs. 2000 in a SIP every month. The market is volatile, which means that the prices of the units in the SIP go up and down.
When the market is bearish, the prices of the units go down. This means that Raj can buy more units with his monthly investment.
Raj benefits from this volatility by accumulating more units when the prices are low. This means that his average cost per unit will be lower, and he will benefit when the market goes up again.
For example, let’s say that Raj invests Rs. 2000 in a SIP every month for 1 year. In the first month, the market is bullish and the price of each unit is Rs. 100. In the second month, the market is bearish and the price of each unit is Rs. 50.
In the first month, Raj can buy 20 units with his investment. In the second month, he can buy 40 units with his investment.
At the end of the year, Raj will have 20 + 40 = 60 units. His average cost per unit will be Rs. 100 x 20 / 60 = Rs. 33.33.
If the market goes up to Rs. 100 again, Raj’s investment will be worth Rs. 6000. This is a profit of Rs. 4000.
Raj’s story shows how SIPs can help investors benefit from market volatility. If you are investing for the long term, don’t worry about the short-term fluctuations in the market.
Just keep investing regularly and your investment will grow over time.
Remember, the earlier you start, the greater the rewards. Begin your SIP investment today and take strides towards a prosperous future.
These are just three of the many reasons why you should start a SIP.
If you are looking for a way to invest for your future, SIPs are a great option. They are simple, affordable, and can help you grow your wealth over time.
READ: Secure Your Future: Why Investment is the Key to Financial Stability
Benefits of SIPs
Here are some additional benefits of SIPs:
- Disciplined investing: SIPs help you invest regularly, even when the market is volatile. This is because the money is automatically deducted from your bank account on a monthly basis.
- Flexibility: You can change the amount of your SIP or the frequency of your investments at any time. This makes SIPs a very flexible investment option.
- Tax benefits: You can claim tax deductions under Section 80C of the Income Tax Act for your SIP investments.
If you are thinking about starting a SIP, here are a few things to keep in mind:
- Choose the right mutual fund scheme: There are many different mutual fund schemes available, so it is important to choose one that is right for your financial goals and risk appetite.
- Set a realistic budget: Decide how much money you can afford to invest each month.
- Be patient: SIPs are a long-term investment, so you need to be patient and let your investment grow over time.
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