Everything You Need to Know About SIP: Your Friend for Long-Term Wealth Generation

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When it comes to investing, we unintentionally make the process more difficult by overthinking it. For example, when should we start? In what to invest? What should I invest in? Suppose the investment fails blah blah blah.

There is a proverb that says, “Drop by drop, the bucket fills.” The same principles govern how a SIP functions. It enables you to regularly invest a fixed sum in a mutual fund, which can be as little as Rs. 500. You can decide whether you wish to invest on a weekly, monthly, quarterly, or even annual basis. You will be able to collect a significant quantity of wealth over time.

SIP

How does SIP work?

You can invest in any type of mutual fund through a Systematic Investment Plan (SIP), which supports your long-term wealth generation. You can invest in SIP mutual funds if you wish to build money. Additionally, this sum is automatically taken out of your bank account at the interval you select for investing. Let’s say you set a monthly SIP where you invest a set amount on the 6 of each month. Therefore, this sum will be automatically taken out of your bank account on the 6 of every month in order to invest in the mutual fund of your choice.

If you buy more fund units when the markets are down and fewer fund units when the markets are up. Since all mutual funds’ NAVs are revised every day, the price of purchase may change from one SIP installment to the next.

How does making SIP investments help you build wealth?

Let’s say, that a mutual fund’s NAV is currently Rs 20. You will now receive 50 units of the plan if you deposit Rs 1,000 in the mutual fund. Your investments will increase in pace with the mutual fund’s rising NAV. Therefore, if the NAV of this fund increases to Rs 30 the next year, the 50 units you purchased for Rs 1000 would now be worth Rs 1,500. This is how your investment develops, helping you in creating long wealth.

SIP Rupee cost averaging

Benefits of SIP investments:

1. Power of compounding:

Over time, the Power of Compounding enables you to increase your returns. Basically, it is a return on your investment in stock mutual funds. Consider investing Rs. 100 in an equities fund that pays you 10% annual returns, for instance. Your entire capital is Rs 110 and you do not withdraw your profit from equity funds, which is effectively reinvested in the mutual fund. Your current returns from the equities fund are calculated on Rs 110 rather than Rs 100, which is the return on your returns.

2. Rupee cost averaging:

Your cost is averaged out each time you make a SIP investment. Sometimes the trend is negative, then it changes to bull, and then it goes back to falling. The cycle proceeds in this manner. As a result, if you regularly invest a certain amount in a SIP, you will receive more units for your investments during a weak market.

3. Ease of Investing:

SIP investments in equity funds are a practical approach to building money over time. It is cost-effective because each SIP installment requires a minimum investment of Rs 500. Your bank receives standing orders from SIP to deduct the required amount each month, and this money is invested in an equity fund.

4. Convenience:

Through a SIP, you can make investments in a planned and disciplined manner. It makes it convenient for you to start investing with as little as Rs 100 every month.

SIP has emerged as the best method of investing in mutual funds in recent years. It helps you save money so that you can reach your financial objectives in the future without significantly stressing your current financial situation. All you have to do is apply reasonable steps when choosing the fund in line with your investment horizon and keep up a consistent payment schedule each month.

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