But do we save?
People seek ways to invest their hard-earned money in order to build a fortune out of it.
One of the most reliable and trustworthy ways which have been in demand lately is investment through the channel of SIP. SIP stands for Systematic Investment Plan.
A SIP is a hassle-free way to invest money in mutual funds. It allows customers to invest a certain amount at regular intervals of time and, thereby, helps in rupee cost averaging.
It is considered to be a systematic approach to investing and helps subscribers to save and build wealth for the future.
A SIP is a flexible, quick and easy investment plan. The money is auto-debited from one’s bank account on a particular date and invested into a specific mutual fund scheme.
Units are allocated based on the ongoing market rate (called NAV or net asset value) for that particular day.
Every time one invests money, additional units of the scheme are purchased at the prevailing market rate and added to the number of units already present in the account.
Hence, units are bought at different rates, and investors benefit from rupee cost averaging and compounding.
If you are a salaried individual, you can invest in a systematic investment plan (SIP) to build a corpus for your retirement.
SIPs are generally recommended for those who want to build their wealth through regular investments and do not have the time or expertise to manage investments. The advantage of SIP investments is that it allows you to make small investments over time so that your money does not lose value due to inflation. You can choose between two types of SIPs:
This type of Systematic Investment Plan has no minimum amount required, and any amount can be invested at any time during the year. However, the maximum amount that can be invested in this scheme is limited by the fund manager and may vary depending on which fund you choose.
This type of SIP requires an initial investment between Rs 50,000 and Rs 75,000 but allows you to invest regularly every month after that without any minimum limit on the amount invested per month.
SIP is an investment strategy that can help you build your wealth over time. You can invest in mutual funds through SIPs to get regular income, which is also called a systematic investment plan.
Here are some benefits of SIP investment for salaried individuals:
Equity markets are inherently volatile.
A stock index never moves in a straight line, so investors need to be ready for volatility.
In fact, it is the volatility that allows one to pick up more units when prices are low. You, as an investor, must always look at the long-term performance across market cycles to see the complete picture of returns for a mutual fund.
Therefore, in SIPs, investors need not worry about the right time to enter the market. Rupee-cost averaging allows a customer to opt out of this stage.
When he/she becomes a regular investor, their money fetches more units when the price is low and lesser when the price is high. During the volatile period, it may allow one to achieve a lower average cost per unit.
As is the case with compounding, one’s returns themselves start earning, and the profit starts piling up at an enormous pace.
In layman’s terms, the earnings from investments that are not spent but reinvested over a period of time can generate greater returns.
If you want to be a successful investor, you need to be disciplined. Period.
SIPs make you invest fixed amounts at regular intervals, thereby committing to regular savings. Every investment is a step towards attaining one’s financial objectives.
In equity markets, large caps are considered to be a safer option as compared to mid and small caps.
If we were to look at the SIP returns generated by top large-cap funds at various time intervals, it could be seen that the below-mentioned funds have generated handsome returns over a period of time and beaten the benchmark as well.
A salaried person whose main avenue for investing is mostly fixed deposits, recurring deposits, Public Provident Fund (PPF) etc., can switch to these funds.
Though the investment entails an amount of risk, over a long period of time, these funds have generated alpha as compared to other debt instruments.
|Particulars||SIP Returns||SIP Returns||SIP Returns|
|Fund Name||3-Year Return (%)||5-Year Return (%)||10-Year Return (%)|
|SBI Bluechip Fund||10.86||14.05||15.22|
|Mirae Asset India Equity Fund||15.21||16.96||18.30|
|Reliance Large Cap Fund||12.79||14.44||14.83|
|ICICI Prudential Bluechip Fund||13.30||13.68||15.29|
|Axis Bluechip Fund||19.22||16.15||–|
The Returns from Various Other Instruments are Highlighted Below:
|Instrument||Current Percentage Return (%)|
|Fixed Deposits||6.7% average|
|Recurring Deposits-Post Office (5-Year returns)||7.4% average|
|Public Provident Fund (PPF)||7.1%|
|Sukanya Samriddhi Yojana||8.0%|
|National Savings Certificate (5-Year)||7.7%|
|Monthly Income Scheme (5-Year)||7.1%|
|Kisan Vikas Patra||7.5%|
Therefore, we can see that over a longer term (5 years or more), mutual funds through SIPs continue to provide higher returns than several instruments, which still today is the go-to investment option for Indian households.
Although it is advisable to continue SIP investment with a long-term perspective, a subscriber can discontinue it at any time (advisable to consider this option in times of necessity).
A customer can also increase or decrease the amount being invested.
SIP is a hassle-free mode of investment. One can issue a standing instruction to the bank to facilitate auto-debits from an individual’s bank account.
These debts can be weekly, fortnightly, monthly and bi-monthly, depending on the choice of the investor.
Also, some people might be in a tussle as to whether they should invest through lumpsum or SIP. Let’s see why a SIP for salaried individuals is a more convenient option:
Since there is a small amount of money flowing out at regular intervals, the SIPs deduction every month does not significantly disturb other financial commitment
If someone is starting his/her career, they would want to enjoy their financial independence, and they would spend a lot.
But as savings are important and discipline is often hard to come by, an SIP is a good way to start investing. They encourage saving a decent sum of money every month
As explained above, a SIP can add up to give substantial returns. For example, a monthly SIP of Rs. 5000 at the rate of 12.5 per cent would grow to Rs.12 lakhs in 10 years, Rs. 26.5 lakhs in 15 years and Rs. 2 crores in 30 years.
A Systematic Investment Plan (SIP) is a type of investment plan that allows you to invest regularly in mutual funds. If you are salaried, you can use SIPs to invest without having to save large sums at one time.
Investing in mutual funds through SIPs is a good way to get professional financial advice and manage your money with ease. It also helps you build wealth over the long term because the investments keep growing over time.
It’s important to note that SIPs do not guarantee returns. The value of your investments can go up or down depending on market conditions, which may be different from what was expected when you started your plan.
So, it is important to do a good amount of research on the best SIP plans for 5 years or the next 20 years, whichever fits your financial goals and then you can begin!
Disclaimer: This blog is solely for educational purposes. The securities/investments quoted here are not recommendatory.
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Research Analyst - Himanshu Sinha