Here are 6 reasons for investing systematically or regularly.
1. Light on the wallet
It is easier to build a long-term innings with singles than hitting 4s and 6s every time. It is convenient to save Rs.500 or Rs.1000 every month than trying to save a lac in one shot. SIP does not hurt and it gives that long-term benefit as well.
2. Helps you to budget well
If there are committed savings/investments regularly then you are forced to make a budget well and it helps you to eliminate unwanted expenses.
3. Makes market timing irrelevant
If market lows give you the jitters and make you wish you had never invested in equity markets, then SIPs can help you blunt that depression. Most retail investors are not experts on stocks and are even more out-of-sorts with stock market oscillations. But that does not necessarily make stocks a loss-making investment proposition. Studies have repeatedly highlighted the ability of stocks to outperform other asset classes (debt, gold, property) over the long-term (at least 5 years) as also to effectively counter inflation. So if stocks are such a great thing, why are so many investors complaining? Its because they either got the stock wrong or the timing wrong. Both these problems can be solved through a SIP in a mutual fund with a steady track record.
4. Helps you build for the future
Most of us have needs that involve significant amounts of money, like retirement, child’s education, daughter’s marriage, buying a house or a car. If you had to save for these milestones overnight or even a couple of years in advance, you are unlikely to meet your objective (wedding, education, house, etc). But if you start saving a small amount every month/quarter through SIPs that are treated as sacred and that is set aside for some purpose, you have a far better chance of making that down payment on your house or getting your daughter married without drawing on your PF (provident fund).
5. Compounds returns
The early bird gets the worm is not just a part of the jungle folklore. Even the ‘early’ investor gets a lion’s share of the investment booty vis-à-vis the investor who comes in later. This is mainly due to a thumb rule of finance called ‘compounding’. According to a study by Principal Mutual Fund if Investor Early and Investor Late begin investing Rs 1,000 monthly in a balanced fund (50:50 equity:debt) at 25 years and 30 years of age respectively, Investor Early will build a corpus of Rs 80 lakhs at 60 years, which is twice the corpus of Rs 40 Lakhs that Investor Late will accumulate. A gap of 5 only years results in a doubling of the investment corpus! That is why SIPs should become an investment habit. SIPs run over a period of time (decided by you) and help you avail of compounding. Please have a look at the power of compounding.
6. Lowers the average cost
SIP’s work better as opposed to one-time investing. This is because of rupee-cost averaging. Under rupee-cost averaging an investor typically buys more of a mutual fund unit when prices are low. On the other hand, he will buy fewer mutual fund units when prices are high. This is a good discipline since it forces the investor to commit cash at market lows when other investors around him are wary and exiting the market. Investors may even be pleased when prices fall because the fixed rupee investment would now fetch more units.
Recent Comments