It is intuitive for many first-time investors to try and time the market, in terms of when they enter (buy assets) and when they exit (sell assets). However, as most experienced investors will tell you, timing the market is nigh impossible, and one should not really try doing the same. In fact, there is an adage of "Time in the market is more important than timing the market."
And this is where SIPs come into play.
Systematic Investment Plans are perfect for those who want a regular and disciplined way of investing. You set a system by which a certain fixed amount gets invested at a regular interval -daily/weekly/fortnightly/monthly or quarterly, in a mutual fund scheme. Instead of a lump-sum you start with an amount that gets debited at your chosen frequency from your account. All you need to do is give your bank standing instructions for this amount, which could be as little as INR 500, to be debited on a given date at a given frequency.
SIP also ensures you don’t get carried away while listening to news of volatility, ups and downs. You get into the market for the long haul, you stay put, stay disciplined and watch your money grow. There also is a concept of Rupee Cost Averaging, which means that, over time, through SIPs, you are able to make your investments at a price that is approximately the average price of that asset over time. This happens because an SIP payment will buy more units of an investment asset when the price has fallen, and end up buying less units of an investment asset when prices have gone up. Over time, the SIP approach allows the investor to buy investment assets at a price that is close to the average price of that asset over time.
Financial independence is crucial for women in today's world. Whether you aspire to travel the world, study abroad, secure a comfortable retirement or invest money for your family- SIPs can be your trusted ally. Because they are incredibly convenient and flexible even when you are taking a sabbatical or a break at different stages of your life. You can increase or decrease your SIP amount as per your convenience, making it easy to adapt to changing circumstances without disrupting your disciplined investment plan and helps build wealth gradually.
SIPs are a way of investing in the underlying product, whether it be stocks or mutual funds of all types. Hence, one can make use of SIPs through all modes of investing that one would use for lump sum investing. These could be directly through the manufacturer's websites (fund houses), through investment advisers, mutual fund distributors (individuals/banks/platforms) and others. All of these options would provide a convenient way to set-up the SIPs by linking the instructions for the bank account of one’s choice.
SIPs provide all the benefits of investing through mutual funds. Mutual funds are managed by seasoned professionals who make the investment on your behalf. They are experts who analyse stocks and bonds alike and then use their knowledge to build a portfolio as per the objective of the scheme. It is also important to remember that SIPs are not only for investment in equity schemes but also for debt schemes.
SIPs can also be done in ELSS (Equity Linked Savings Scheme) mutual fund schemes that come with tax benefits under Section 80C of the Income Tax Act. So, the additional gain is that you invest in building your wealth while also reducing your tax liability.
Systematic Investment Plans therefore can be compared to a consistent workout routine for physical fitness. Just as a regular fitness regimen involves making small, systematic efforts over time to achieve overall health goals, SIPs involve making small, periodic investments in mutual funds to build wealth over the long term. Both emphasise the importance of consistency, discipline, and patience for significant and sustained results.
The article is published in collaboration with BSE Investors’ Protection Fund to spread awareness with respect to personal finance and investing, especially for women.