SIP is the best way to wealth!

SIP - The road to financial goals

• SIP stands of Systematic Investment Plan and today, almost everyone recommends to opt for it in order to create wealth in the future. It is thought of as the easiest method to achieve financial goals without much risks, hurdles and obstacles.

• But why is it so? Why people have so much trust over it? Is it really that beneficial?

I've tried answering some of these questions below 😊

• First of all, lets try to understand how does SIP even work. It is a method to invest money into mutual funds or other various asset classes like gold, equity, debt and much more. 

But then how is it different from normal investing?

• Its different from normally investing money because SIP like its full form suggests, works in a systematical way. It works in a kind of automated way where the investor sets up the frequency best suitable for him which can be daily, weekly, monthly, quarterly, yearly anything which he likes.

• When that day or date arrives, an amount of money (which is already pre defined by the investor) gets deducted from say his bank account and gets credited to his investment account. This then is supposed to be followed religiously for a long period of time in an automated and systematic way. That's how SIP works.

What are the benefits of SIP over normal investing?

• No Worries of Timing the Market :- The most confusing thing for investors while making investment decisions is that is the current time the best one to buy or not? Will the market go up or down from here? This is the biggest dilemma and to be honest, even the most pro trader in this world doesn't know the answer. Timing the market is an extremely hard skill and for beginners its next to impossible. But, here comes the savior, SIP doesn't care if you time the markets or not! If an investor would just keep investing systematically no matter if its a bull, bear or sideways market, his average cost price would always be below when market hits the next high hence giving him a nice profit. The fruit of being invested and even investing more in a complete market cycle is always sweet!

• Averaging helps increase profits :- This is the reason why SIP is supposed to be done for longer period of times only. Suppose you start your SIP at the worst possible time that is at the peak of a bull run. You keep investing systematically when the market is in sideways mode. Then a bear market arrives too but you don't fear that and you keep investing no matter what. Till now you have only seen un realized losses in portfolio but there is one good thing, your average prices have come down. Now, once the market moves up again and gets into another bull run hitting a new all time high all of your un realized losses would turn into big profits. Isn't that amazing? This is why when bear market arrives, many people increase their SIP amounts so that they can bring their average cost as low as possible.

• Affordable to all :- Another big plus point of SIP is that you can start with as low amount as you like. In normal investing when you put money in a lumpsum way, you need to put big amounts of money in order of generate some return. If less, its not adequate. But, as SIP is done frequently, the investment amount get split between the dates and the burden on one's pocket decreases. Its just like how EMI works. Many do monthly SIPs worth Rs. 500 or Rs. 1000 and at first glance they look insignificant but over the long term when compounding comes into play, it surprises the investor. 

These are the reasons why SIP is considered as the game changer when it comes to achieving financial goals over long term. The investor also has the flexibility to increase the investment amount if they feel the need to. But, one must not skip it at any costs because that would hamper the process of averaging and compounding both at the same time which might be really really harmful. Discipline is the key to success when it comes to SIP!

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