Mutual Funds are gaining importance these days...have you invested yet?
Well, if you don't know what is it, then let us go through...
Mutual Fund is an asset class which nurtures & grows your Wealth. It helps a collective group of individuals to :
Pool their investible surplus
Optimize the knowledge & experience of a fund manager
Grow their Wealth
Technically speaking, a mutual fund is an investment vehicle which pools investors' money and invests the same for and on behalf of investors into stocks, bonds, money market instruments and other assets. The money is received by the AMC with a promise that it will be invested in a manner by Fund Managers. The Fund Managers are expected to honor this promise. The SEBI and the Board of Trustees regulate over it.
Advantages of Mutual Funds
- Diversification
- Liquidity
- Professionally Managed
- Convenient
- Safe & Transparent
- Hassle Free Process
- Tax Efficiency
- Low Investment Costs
Systematic Investment Plan
The popularity of SIPs or Systematic Investment Plans have gone up in the last couple of years. However, many investors, including those who have already made SIP investments in Mutual Funds, are often confused about SIPs.
Well, the question is why should you do a SIP?
It creates a Financial Discipline is your Life. It helps you to invest regularly in Mutual Fund without wrestling with the market conditions. In short, it is a hassle free process.
‘Slow and steady wins the race’. Steady being the important word for us over here.
We are very familiar with the story of the tortoise and the rabbit. The steady one wins at the end. The same concept works in the case of wealth creation as well. Investing in Systematic Investment Plan is a long term commitment, thus you need to be steady & consistent. Under SIP investment, a fixed amount is debited from the bank account of the investor on monthly basis on a particular date.
As the needs and aspiration of people keep on growing it is important to create wealth for longer term in order to achieve the financial milestones of life. Systematic investment plan is the safest and the most convenient way to achieve the long term financial goals.
SIP allows you to invest a certain pre-determined amount at a regular interval (weekly, monthly, quarterly, etc.). A SIP is a planned approach towards investments and helps you inculcate the habit of saving and building wealth for the future.
How does it work..?Your money is auto-debited from your bank account and invested into a specific mutual fund scheme. You are allocated certain number of units based on the ongoing market rate (called NAV or net asset value) for the day.Every time you invest money, additional units of the scheme are purchased at the market rate and added to your account. Hence, units are bought at different rates and investors benefit from Rupee-Cost Averaging and the Power of Compounding.
Advantages of Systematic Investment Plan
Discipline
As the name suggests, Systematic Investment Plan is Systematic. It inculcates a discipline among the investors to invest regularly without timing the market. After all, staying consistent & steady is vital.
Rupee Cost Averaging
With volatile markets, most investors remain skeptical about the best time to invest and try to time their entry into the market. Rupee-cost averaging allows you to opt out of the guessing game. Since you are a regular investor, your money fetches more units when the price is low and lesser when the price is high. During volatile period, it may allow you to achieve a lower average cost per unit.
Power of Compounding
‘Compounding is the eight wonder of the World. He who understands it, earns it.he who does not, pays it.!’
- Albert Einstein
The rule for Compounding is similar.the sooner you start investing, the more time your money has to grow!
Flexibility
It is advisable to continue your SIPs for a longer horizon of time. However, there is no such compulsion. Investors can discontinue at any point of time. Investors can also increase or decrease the amount.
Long Term Gains
Due to factors like Rupee Cost Averaging & Compounding, SIPs are capable of delivering handsome returns in the long run. Hence, it is feasible for salaried people who stay invested for a longer period of time.
Road map to achieve your Goals
SIP is a great tool through which long term Financial Goals can be accomplished. You tend to invest little by little & are stunned at the end of the tenure to find a huge corpus. Thus, your Financial Goals an be fulfilled.