For a novice investor, the world of mutual funds can appear daunting. But it doesn’t have to be. With a Systematic Investment Plan (SIP), you can start your mutual fund journey with an investment of as little as Rs. 500 in general.
If you’re someone looking to build financial discipline, an SIP can be a simple yet effective way to begin your investment journey. Whether you are a student or a working professional, remember that it is never too late to build a corpus that can help you on a rainy day or help you potentially live your dream life.
Let this article serve as a beginning point in your financial wellness journey.
What is an SIP?
First, let’s understand what an is. A Systematic Investment Plan helps you invest a fixed amount of money in mutual funds at regular intervals. You can invest daily, weekly, monthly, quarterly etc.
What’s more, you can start investing with as little as Rs. 500. For instance, you may choose to invest Rs. 500 every month. All you need to do is pick the mutual fund of your choice and set an investment date that you can stick to throughout the year. Each month, the sum of Rs. 500 will be automatically deducted from your bank account and deposited into your chosen scheme. This simple process is enabled by an SIP.
How does SIP work?
Now that you have a basic understanding of SIPs, you must be wondering how it works and how it can enhance your finances.
Let’s explore the various elements that come together to make an SIP suitable for a wide range of investors.
Disciplined investing
A key benefit of starting an SIP is that it lets you build the discipline to invest regularly. Moreover, your money is invested at pre-determined frequencies, saving you the time and trouble of trying to time the market. This, in turn, removes emotional decision-making and the stress of trying to navigate market volatility.
Affordability
Coming to another important benefit, with SIPs, you have the flexibility to invest in mutual funds with a sum as low as Rs. 500, generally. With this affordable starting point, you can potentially build long-term wealth in a stress-free manner. At the same time, you can learn the discipline of investing regularly and understand the market at your own pace.
Power of compounding
Remember your childhood piggy bank? You deposited coins in it one day at a time till the day came when it was too heavy to lift. A similar yet advanced principle is applied to your SIPs. While it takes regular financial discipline from your end, these slow and steady investments can potentially result in significant growth in the long term.
This is because of the principle of compounding. Through an SIP in mutual funds, you don’t just make potential gains on your investments but also the returns you get over time. This can have a snowball effect in the long term, potentially resulting in accelerated growth. This power of compounding is leveraged by SIPs to create a holistic financial approach where even Rs. 500 a month can build up to a sizeable corpus in the long term
Rupee cost averaging
Rupee cost averaging is a key benefit of SIPs that helps you navigate market ups and downs more efficiently.
By investing a fixed amount regularly, you automatically buy more units when markets are low and fewer units when markets are high.
Over time, this can average out the purchase cost of your investments and optimise potential returns in the long run.
It’s a built-in strategy to stay disciplined and reduce the impact of market timing, Gradual exposure
When you start with a smaller sum, you gain gradual exposure to the market. This allows you to get acquainted with the workings of the financial market and adapt to its volatilities, without risking a large capital. This can further encourage investing discipline.
The importance of SIP calculators
Though an investment of Rs. 500 might not seem enough initially, it can help you build a sizable corpus in the long run. An can assist you in seeing this potential. Simply entering your SIP amount, your investment timeline and the expected rate of interest into an SIP calculator can give you an estimate of your potential corpus size at the end of your investment journey.
For instance, let’s assume that you plan to invest Rs. 500 over the next five years and expect to earn returns at the rate of 12%. At the end of the decade, you will have invested Rs. 60,000. Moreover, your estimated earnings would be Rs. 52,018 bringing your potential final corpus to Rs. 1,12,018.
Having an overview of your investment plan can help keep you motivated throughout your investment journey. By seeing how your investments could potentially grow and evolve over time, a calculator can help you make informed decisions.
Conclusion
Starting an SIP with Rs. 500 gives you the opportunity to explore the world of mutual funds gradually. With tools like SIP calculators, you can make your investment journey even easier. Always remember – a start, however small, is a start.
