With more people going online, the awareness about financial planning and investment in stocks is growing. Yet to what extent is that awareness translating into actual investment? Most potential investors grapple with a dilemma — will investing now lead to gains? Experts say there can be no good time to invest as it’s impossible to predict the market with accuracy. Investors try to guess the direction the market will take based on their experience. So, it is not very fruitful to try to time the market.
Instead, investors should plan to remain invested for some time. Because markets have a tendency to rise every time they fall. Some investors follow the strategy of ‘buying on lows and selling on highs’. Still, the market is always unpredictable and if you feel the market dynamics are too risky for you, take the easy but long-term SIP route to accumulate wealth.
What’s a SIP?
A Systematic Investment Plan, popularly known as SIP, is a facility mutual funds offer to investors to invest in a disciplined manner. For running a SIP, you need to invest a fixed amount at predetermined intervals. The amount could be as low as Rs 500 and you can pick the intervals depending on your flexibility as weekly, monthly, quarterly, half-yearly, and annually.
What are the benefits of SIPs?
- SIPs stand to benefit in the long-term as the investment growth is compounded and any periodic loss is averaged out. With compound interest, you earn returns not only on your principal amount but also on the gains on the principal amount.
- It gets easier to achieve your goals if you start investing in SIPs early. Also, this form of investing makes you financially disciplined.
- You can stop the SIP plan anytime you want. There is no fine if you do so. This is a big advantage over recurring deposits (RD), which may put a fine on you if you stopped it. After stopping your SIP, you can either withdraw the amount or let it grow in the mutual fund.
- With SIPs, you don’t have to worry about the market. When the market is high, your monthly SIP buys you fewer mutual fund units. When it is low, the same SIP amount buys you more units. In the long term, the investment averages out due to rupee cost averaging.