There’s a popular belief in investing world – if you want to see progress in your investment portfolio and become rich, then you must deal in quantity than quality. As a result, investors end up believing that they require bulk investments to enjoy significant profits. However, is this true? Not entirely. There are other ways to become rich too. Enter SIP. Let’s understand how Systematic Investment Plans, commonly known as SIP can help you become rich.
When you leave your income every month in your bank account, they merely attract an interest rate of 4% per annum. This low-interest rate is not only insufficient to help you grow your wealth but also does not serve the purpose of beating inflation. In short, your money deteriorates over time.
So, what should you do? You can consider your investing your money in mutual funds. Thanks to SIP, you can invest as low as Rs 100 per month in mutual fund schemes and watch your money grow before your eyes. Here’s how SIP wins over different modes of investments:
The power of compounding
The power of compounding helps your money to grow at an exponential rate. Compounding ensures that your returns are further invested to earn returns on them. In short, your money works to make more money for you. Thus, compounding is rightly referred to as the eighth wonder of the world by several experts. So, instead of waiting to accumulate a significant amount and then investing in mutual funds, you can begin investing in mutual funds right now with the help of SIP. SIP investments do not need a significant amount of money to be invested.
The advantage of rupee cost averaging
Rupee cost averaging is a powerful concept. SIP invest your money in mutual fund schemes despite market volatility and condition. This means that your money is invested in different market cycles. Under SIP investment, units are bought at the NAV of mutual funds (Net Asset Value) on a specific date a result, you end up collecting more mutual fund units when the markets hit a low point and vice versa. This lowers the average cost of the mutual fund units bought. This concept is known as rupee cost averaging. Thus SIP investment eliminates the need to time the markets.
The benefit of disciplined investing
With SIP, regular investments are made in your desired mutual fund schemes. Your money is debited from your bank account and invested in mutual funds on a particular date of each month. This instils the habit of financial discipline among investors. To become rich, investing discipline is very important and SIPs help you achieve the same.
SIP is a smart approach to invest your money. Popular among retail investors, SIPs have proved to be a safe and powerful investment tool for investors all over. Remember, you can also use a SIP calculator to understand the future value of your investments. A SIP return calculator will help you to plan and manage your finances in a better way. Happy investing!