SIP stands for Systematic Investment Plan – that is, regularly investing a fixed amount in a mutual fund.
The greatest benefit of SIP is from Rupee Cost Averaging which means that your costs are averaged out. When the market is low, you are buying more units and when the market is high, you are automatically buying less units because your investment amount is fixed regardless of the market conditions.
However, there is a secret to make SIP successful and that is, you avoid timing the market. Put simply, it means that you are not looking for an opportune time to invest, rather you are deciding to stay invested across multiple market cycles.
Most people tend to stop investing when the market goes down because they are scared. However, if you are an SIP investor, and you continue investing regularly, you are positioning yourself to reap great benefits when the market eventually goes up.
Let us take a look at this through an example:
If a company offers you a 1-month project and gives you two options of structuring your remuneration, which one would you choose?
a. Fixed amount of Rs 200,000/-
b. 1 paise on day 1, 2 paise on day 2, 4 paise on day 3 and so on for 30 days.
Most people would have gone with Option A. But Option B gives you a much higher remuneration. In fact, the total remuneration comes to 1,07,37,418.
However, there is something more to it than meets the eye.
Look at the figures closely. The real and visible multiplication of income starts after day 10. After day 20, the numbers take a huge jump.
This is nothing but the “Power of Compounding” that we have heard so often, but seldom implement it in our investing life.
Applying this example to our investments, it simply means that if you want to see huge and visible returns on your investment, keep regularly investing for at least 10-15 years. And if you can continue till Year 20 or Year 30, your wealth will see colossal increase.
If you have got any questions or you are confused about your investments, feel free to send me a message using the form below.