Knowledge Center

The Power of Systematic Investment Planning

 

Investing is a very tough exercise. So, how does one get started and keep following it year after year?

Through Systematic Investment Planning, also known as SIP.

What is Systematic Investment Planning?

Well, Systematic Investment Planning is a way to ‘automate’ the habit of investing.

It is a method of investing in Mutual Funds in a planned manner, wherein you can invest an amount of your choice in a mutual fund scheme at fixed intervals. This approach allows you to take savings and grow them in a way that leads you to generate wealth. Thus, making you a disciplined saver and investor as well as creating a healthy investment habit.

You can start investing in SIPs with a small amount and gradually increase it over a period of time. In fact, you can take a call on how regularly you want to invest – it can be weekly, monthly, quarterly or even annually.

Through the SIP investment option offered by Mutual Funds, you can achieve your goal of creating wealth over a long period of time – one of the powers of investing through SIP.

Having learnt what SIP is, let us now delve into the Powers of SIP.

1. 
Power of Pocket Friendliness
Investing via SIP in mutual funds means that you don’t require a huge chunk of money to invest. You can start investing with as low as INR 500. It allows you to invest in small chunks, thereby being pocket friendly.

2. Power of Balancing the Market Ups and Downs
Taking the SIP route to mutual fund investments opens up a window for the investor to invest in a time-bound manner without worrying about the market dynamics. Investing through SIP ensures that you don’t time the market. You keep on investing systematically, irrespective of the market’s ups and downs.

3. Power of Rupee Cost Averaging
It’s a fact that SIP works better than other investment methods available in the market, which allows lump sum investment, and this is because of rupee cost averaging. Under the rupee-cost averaging, one can typically buy more of a mutual fund unit when the prices are low, and similarly, one can buy fewer mutual fund units when the prices are high. It contributes to a good discipline. Also, it forces one to commit cash at market lows, when many other investors in the market are wary and exiting the market. On the other hand, it enables one to lower the average cost of their investment.

Month

Amount Invested via SIP

NAV

Units Purchased

1

INR 1,000

INR 100

10.0

2

INR 1,000

INR 90

11.11

3

INR 1,000

INR 88

11.36

4

INR 1,000

INR 96

10.42

5

INR 1,000

INR 99

10.10

6

INR 1,000

INR 102

9.80

7

INR 1,000

INR 103

9.71

8

INR 1,000

INR 105

9.52

9

INR 1,000

INR 104

9.62

10

INR 1,000

INR 105.50

9.48

11

INR 1,000

INR 105

9.52

12

INR 1,000

INR 106.80

9.36

 

So, from the above table, you can see that based on the market movements, the NAVs fluctuate and so do the units purchased and allocated to you.

Essentially, you buy more when the markets are low and buy less when the markets are high. This ensures that you get maximum value for your investments even if the market is volatile.

4. Power of Compounding

It is often referred to as the eighth wonder of the world. Under the power of compounding, you not only get returns on the money which has been invested but also on the gains. One of the most significant benefits that investors can appreciate about the power of compounding is the value of time.

With time, you could gain returns, and the yields on these returns could further generate returns, thus, helping to increase your investments quickly. And this way, an investor can create a significant amount of wealth over a period of time, subject to market conditions.   
Imagine you invest Rs. 5,000 every month. The interest on this amount is 10% per annum. Let us understand how your investment returns would look like over time: 

Amount in Lakhs

Years (Yr)

5

10

15

20

25

30

Amount Invested

3

6

9

12

15

18

Expected Return on Investment

3.9

10.3

20.9

38.3

66.9

114

Gain

0.9

4.3

11.9

26.3

51.9

96

The above is only for illustrative purposes

The above table clearly demonstrates the benefit of compounding. 5th years onwards, the wealth gains rise exponentially to generate INR 96 lakhs.

Another thing that the table indicates is the importance of investing early or giving enough time for your investment to generate returns you would love to see, as well as having the patience to withstand the market ups and downs.

5. Power of Flexibility

Under SIP, the amount you invest periodically can be changed at any time according to your wish. The benefit it allows is that you can increase the investment amount as and when your incomes grow. In this way, you can increase the value of your returns too.

Over the years, SIP has become the favourite mode of investing in mutual funds. It helps you to achieve your financial goals without putting much stress on your monthly budget. The only thing you need to do is select the appropriate mutual fund scheme as per your investment goal and follow a disciplined investing approach. 

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Disclaimer:

The section Knowledge Centre on this website is a platform for WhiteOak Capital Mutual Fund to spread awareness and educate investors about various Mutual Fund products. It should not be construed as an offer to sell nor is a solicitation of an offer to buy units of any of the schemes of WhiteOak Capital Mutual Fund. Figures indicated here are for illustrative purpose only and does not correspond to any live or historical data. The information herein above is meant only for general reading purposes and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. Before making any investments, the readers are advised to seek independent professional advice, verify the contents in order to arrive at an informed investment decision. None of the Sponsor, the Investment Manager, the Trustee, their respective directors, employees, affiliates or representatives shall be liable in any way for any direct, indirect, special, incidental, consequential, punitive or exemplary damages, including on account of lost profits arising from the information contained in this material.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.