Consistency. Regularity. Habit building.
You’ve heard us talk about these things a lot. We are big fans of disciplined and smart investing, here at Deciml, and in that spirit, we thought we’d shed some light on one of the most efficient ways to practice just that – Systematic Investment Plans, or SIPs.
Let’s not dilly-dally – we’ve got a fair bit to cover!
What are Systematic Investment Plans?
A Systematic Investment Plan (SIP) is a popular payment structure for investing in mutual funds. It allows you to rid yourself of the burden of having to save large sums of money to invest, and instead, will enable you to invest small amounts of money in a routine manner. Many investment and micro investment apps out there allow users to invest as little as ₹100 into SIPs!
Advantages of Investing in Systematic Investment Plans
Systematic Investment Plans present a unique opportunity for young investors to kickstart their financial journey on the right foot (and hopefully for the long run!). SIPs have gained immense popularity in recent years due to their simplicity, accessibility, and potential to cater to the needs of young investors.
Here are some of the key advantages of Systematic Investment Plans that make it a game-changer for newbie investors in India –
1. Low Entry & Exit Barriers – One of the most significant advantages of Systematic Investment Plans for young investors is the low entry barrier. Many investment avenues, such as real estate or large lump sum investments in the stock market, require substantial initial capital. SIPs, on the other hand, offer you the flexibility to start with a minimal amount, often as low as ₹500 per month. There are apps that can push this limit even lower to ₹100. And apps like Deciml will allow you to practice the spirit of SIPs with as little as ₹1! This affordability makes it easier for young individuals, who are typically just starting their careers and may have limited financial resources, to kickstart their investment journey without feeling burdened. Also, unlike certain investment options which may have lock-in periods, SIPs allow you to redeem your units partially or completely at any time.
2. A Good Habit – If there is one thing we will always stand behind – it is the power of disciplined investing! Systematic Investment Plans can help instill financial discipline in you by encouraging regular, fixed contributions to your investments. With SIPs, a fixed amount is invested at predefined intervals (typically monthly), which cultivates regularity and ensures that investors commit to saving and investing a specific amount consistently. It can help you develop an important habit that is ultimately crucial for your long-term financial success. Automation makes investing through SIPs even easier!
3. Customization & Flexibility – Investors can choose from a wide range of mutual funds with different risk profiles based on their financial goals and risk appetite. You can tailor your Systematic Investment Plans to align with your specific needs and objectives – whether it is wealth accumulation, retirement planning, or funding major life events. Additionally, SIPs also offer flexibility in terms of investment amount and frequency, making it suitable for young investors with varying financial capacities. As their income grows, they can increase their SIP contributions accordingly.
4. Diversification – Systematic Investment Plans will enable you to diversify your investment portfolio across various asset classes and sectors. Diversification, as you already know, helps spread risk, reducing the impact of a significant downturn in a particular investment. By investing in a mix of equities, debt instruments, and other assets, you can build a well-balanced portfolio that is better equipped to handle market volatility and can optimize your wealth creation too!
5. Tax Relief – You can set up Systematic Investment Plans for Equity Linked Saving Schemes (ELSS), which will offer you tax deductions of up to ₹1.5 lakhs under Section 80C of the Income Tax Act of India. So not only are you investing your money for the long term, but you are also leveraging the opportunity to save on taxes. By investing in tax-efficient SIPs, you can seamlessly optimize your tax liabilities and enhance your overall returns.
All these advantages are yours to tap into – if you just start investing regularly today. SIPs ultimately allow you to start investing now – and you know that when it comes to investing – the sooner, the better!
Kudos for the Crew!
Before we leave you, we wanted to touch upon two supporting stars that make Systematic Investment Plans worthy of being the main character!
1. Rupee Cost Averaging – Systematic Investment Plans follow a strategy known as rupee cost averaging, which can be highly beneficial for young investors. When market prices are high, the fixed investment amount allows you to buy fewer units, and when prices are low, more units are purchased. Over time, this helps average out your cost of investment. In volatile markets, rupee cost averaging mitigates the risk associated with trying to “time the market” (which, as you know – is not an accurate science!). Young investors, who may be new to investing, can benefit from this feature as it reduces the impact of short-term market fluctuations on their overall portfolio.
2. Compounding Interest – For young investors, time is a valuable asset when it comes to the power of compounding. Systematic Investment Plans facilitate compounding, where the returns earned on investments are reinvested, leading to exponential growth over the long-term (the keyword here is ‘long-term’). The longer the investment horizon, the more significant the compounding effect becomes. Starting SIPs early in life allows you to harness the full potential of compounding, potentially creating substantial wealth over time. If we’ve piqued your interest with this one (see what we did there?) – read on to find out more about how compounding might be a main character too!
And there you have it. SIPs have main character energy!
Systematic Investment Plans are a great way to start building your financial portfolio. It is a burden-free, flexible, and productive way to let your investments grow – ultimately letting your money make money for you!
A Systematic Investment Plan (SIP) is a popular structure for investing in mutual funds. It allows you to rid yourself of the burden of having to save large sums of money to invest, and instead, will enable you to invest small amounts of money in a routine manner.
Systematic Investment Plans follow a strategy known as rupee cost averaging. This means that when market prices are high, the fixed investment amount allows you to buy fewer units, and when prices are low, more units are purchased. Over time, this helps average out your cost of investment.
Simply put, compounding interest is the interest you earn on your interest. When compounding interest is applied to an investment, the returns earned on investments are reinvested, leading to exponential growth over the long-term.
Yes. You can facilitate a Systematic Investment Plan for your tax-saving ELSS mutual funds.
You can typically invest as little as ₹500 in a SIP, but some apps will let you invest as little as ₹100 into a SIP. With Deciml, you can start a daily SIP of as little as ₹10.