Don't lose Faith-Stick to SIP Investments



Discipline is Rewarding even in Money matters



Equity market investors are a bundle of nerves today. With the tumbling rupee, not so encouraging global cues and shaky macro economic fundamentals, most equity investors are clueless about the future direction of the equity markets. 

Time has come to refresh the most important lesson on investing in equities. 

“It pays to spend more time in the market than timing the market.” 

Whenever you decide to buy a stock, the markets on the rise and when you want to sell it, the market goes into a tailspin. Sounds like a similar story?

A disciplined investment strategy such as Systematic Investment Planning (SIP) helps you beat the fallacy of timing the market. 

In the recent times, SIP has become a popular method of investing in mutual funds. Apart from SIPs in mutual funds, today investors have the option to do SIPs in stocks and Exchange Traded Funds (ETFs). 

How SIP helps you build Wealth

Let us understand this with an example. If you had invested Rs 5000 every month to buy ITC* shares for 10 years, you would have accumulated around Rs 28.6 lakhs even as the investment amount was much lower at Rs 6 lakhs. 

How did this happen? In financial jargon, it called as Rupee Cost Averaging (RCA). 

You bought ITC stock at fixed points in time irrespective of its price levels. The monthly approach ensured you bought more stocks when the price was lower and fewer stocks at higher prices. As a result, the cost per stock reduced over a period of time. The bigger advantage is, it eliminated the risk of investing a lump sum amount at a wrong time. 

SIP vs Lumpsum Investments

It is like comparing apples to oranges. 

Don’t compare lump-sum investments and SIPs. It is not about which investment strategy scores over the other. They are both very investment strategies although the underlying financial instrument is equity. 

When you invest the entire sum at one go and leave it untouched for 7-8 years, the compounding effect will be higher given the sheer size of the corpus. 

SIP is convenient and lighter on your pocket especially in today’s time when most individuals are saddled by EMI commitments. It gives you an opportunity to save small amounts every month, which can build a huge corpus over a period of time. 

Why SIPs are investor friendly? 

-If you are a salaried individual with a regular income and monthly EMIs, SIPs are the best bet. It allows you to invest as low as Rs 500 every month.

-The disciplined strategy gives you an opportunity to invest at lower levels given the higher frequency of the investment. 

-You are investing a small sum every month. This corpus will grow big over long-term due to compounding effect. 

-Your purchase cost of the asset becomes much lower since you are buying at all price levels. 

You have a financial goal? But don’t have the money to invest today. Start Small and do a SIP. Increase the Investment amount in a staggered manner.

Disclaimer: The above calculation is for the purpose of illustration only.