As they say, it is never late to start investing. So, leave your old baggage out with 2018 and let us start this new year with fresh beginnings. Assuming the new year resolution fever has died down and you are still looking for a start, we’d like to pitch in and save you the research. One of the most important things to keep in mind is your investment vehicle. We suggest you start with SIP in mutual funds. Why you ask? Mutual Funds mitigate the risks associated with investments to a large extent by diversifying your investments across industries and organizations. Think of them as an umbrella of securities managed by an expert, to match your risk and return appetite.
A Systematic Investment Plan (SIP) lets you invest smaller amounts at a regular frequency in a mutual fund. It unfolds many benefits in the longer run, some of them are listed below-
SIP ensures the investment discipline we might otherwise lack. Recall the rush to last-minute save in order to save tax, when sometimes the required amount is also not available with us. A SIP in a tax saving mutual fund can solve this problem for you. Rs 10,000-15,000 per month will trouble much lesser than gathering 1.5 lakh at one go during tax-season.
SIPs let you start as small as Rs 500 per month. This ensures that you pick up the slot most convenient to you as per your income and expenditure. The goal is to save comfortably and SIP is that comfort.
Power of Compounding
The idea is simple- the longer the money stays invested, more compounded are the returns. Hence, most mutual funds would give you better results if you stay invested in it for a longer period of time. Let us understand this with an illustration-
A and B started investing Rs 5000 a month as SIP in an equity mutual fund. A did it from the perspective of retirement whereas B did not have any specific goal and withdraws his investment after 10 years. A too stops investing but does not withdraw his money.
Hence, an amount left untouched to grow has grown by 400% and thus A benefitted from the power of compounding which is nothing but compound interest weaving its magic.
Rupee Cost Averaging
What is the opportune time to buy units in a mutual fund? You might buy units with a lumpsum amount, post which the units might get cheaper making you realize you should have waited to get a better deal. This is the problem SIP takes care of by distributing your buying of units over a period of time. Consider the same example as above where A is investing Rs 5000 per month-
Now, suppose this was to be a lump sum investment in Jun’19, the number of units earned would have been 600 only. So, Rupee Cost Averaging has saved you by buying lesser units when the price per unit is high and buying higher units when the price per unit is low.
WealthApp Advisors are happy to help you start your new SIP. And it is simple too! Just register with WealthApp and get started today!