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Create wealth SIP by SIP
Published On , 29 Jan 2018 By TOI
Systematic Investment Plan (SIP) in Equity mutual funds can create a large corpus for an investor over the long term without the investor stretching his/her monthly budget. Technology innovations in the banking space have made investing through the SIP route paperless, faster and a smooth process.
Financial planners and advisors say a large corpus could be planned through SIP for various financial Goals. Some of the major Goals for which the SIP route to investing could be taken include building an individual’s retirement corpus, meeting a child’s higher education costs, meeting expenses for a child’s marriage, building a corpus for meeting healthcare costs during old age.
ADVANTAGES OF SIP
Financial planners and advisors point out several advantages of investing through the SIP route. Some of these are SIPs in Equity funds could help the investor beat inflation over the long run, it instills an investing discipline and also helps in rupee- cost averaging.
As one is expected to keep the SIP amount in his/her bank account every month on the pre-decided date, an element of monetary discipline automatically kicks in. The rupeecost averaging aspect of SIP is the one where for the same amount of money the investor gets to buy more units of the fund when the markets are down, and less number of units when the markets are up. Over the long run, this automatically averages out the total cost of acquisition of mutual fund units for the investor.
POINTS TO REMEMBER WHILE INVESTING THROUGH SIP
Financial planners and advisors say that Goal setting, the process of zeroing in on the reason(s) for investing, and also estimating the time to reach those Goals are the two things an investor should do before starting an SIP. The next few steps are estimating the final corpus after considering the rate of inflation, risk profiling of the investor, judging the suitability of the fund in which SIP is being set up, portfolio review and to consider if the investor needs help from a financial planner or an advisor.
According to Mukund Seshadri, cofounder, MSVentures Financial Planners, investors should be made aware that if and when markets go down, they should not sell in panic or even stop their SIPs. “When the markets go down, investors have to hold and if they continue to invest, they’ll get a lot of units,” he said.
As of now the markets are doing well and lot of money is coming into the fund industry. But markets usually go through cycles and when the tide turns, then the whole industry will need to work harder to keep investors within its folds, financial planners and advisors said.
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