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Creating wealth with SIP

By Shlok Kamat

10th Aug 2022

4 mins read

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Your money only jiggles (actually, it doesn't even do that)

It doesn't grow...

When lying ideally in your bank account.

So, when does it grow?

It grows when you invest.

It grows with stability when you invest in SIP in Wise. (Keep reading to know why?)
Over the past decade, SIP has become synonymous with mutual fund investing. Such is the popularity of SIPs that even seasoned investors consider it an investment and not a tool to invest in the stock market. Why? Because it allows investors to inculcate a habit of investment without worrying about losing their money to market volatility.

So, let's begin from the beginning...

What is a SIP?

A systematic Investment Plan (SIP) is a method of investing money in a mutual fund of your choice. The setup is such that the money is automatically debited from your bank account periodically.

SIP is closely related to the conventional way of investing as your investments are made in different asset classes, such as equity, gold, debts, and so on, according to the asset allocation structure and investment plan mentioned in the Scheme Information Document.

A disciplined approach to investing, especially in mutual funds, has several benefits, especially in the long run. Regularly investing could become a habit if you include it as part of your monthly household budget and manage your monthly income accordingly.

SIP is popular because it enables small investments over the long run, potentially increasing investors' wealth. The flexibility to invest a sum as small as INR 500 a month makes SIP affordable and provides many first-time investors with the option to experience how investing works.

The illustration assumes a monthly SIP of ₹10,000 every month in a mutual fund (illustration purposes only). The investment is converted into units per the fund's prevailing NAV.

The NAV reflects the index or the market movement on which the fund is based and can go down or up depending on how the market functions.

Month NAV (INR) Number of Units Cumulative Units
April 25 400 400
May 26 384.62 784.62
June 25.5 392.16 1176.77
July 24 416.67 1593.44
August 23.5 425.53 2018.97
September 25 400 2418.97
October 25.5 392.16 2811.13

When you examine closely, you can see that when the NAV is high (likely higher market level), the number of units allotted for the same INR 10,000 SIP is lower than the month when the NAV is low (the market is down). In this manner, the unit cost of your investment gets averaged with the market's highs and lows. This aspect is known as rupee cost averaging and is essential when investing through SIP.

Rather than looking for opportunities to invest in the fund when the market is down, or the NAV is low, by investing through SIPs, you could mitigate the risk of timing the market and staying invested for a more extended period and attaining target goals. By doing this, you can teach the discipline of investing while compounding and growing your money over the long term.

Types of SIP

  1. Regular SIP - This is the simplest type of SIP in which you invest fixed sums of money in the chosen scheme at periodic intervals.
  2. SIP top-up -  This type of SIP, also known as a step-up SIP, allows you to grow your investments regularly.
  3. Perpetual SIP - When the duration of a SIP is not stated, it becomes a perpetual SIP.
  4. Multi SIP -  This kind of SIP allows you to diversify your investments.

Before we let you go...

Suppose you are concerned about the inherent risks associated with investing in the stock markets. Why not try Spenny Wise - a no-nonsense investment product? Spenny wise is a peer-2-peer lending instrument where an investor gets up to 10% stable returns (via daily interest payment) at a minimum lock-in period of 7 days. One can start with as low as ₹100, and guess what? We also have a SIP feature for disciplined investing too!

Wrapping Up

The simplicity of SIP and ease of understanding has the potential to ride over market cycles for disciplined investors to create long-term wealth. Given the upside to SIP investments, make a start, invest in mutual funds through SIPs and work towards realising your financial goals.

FAQs

How do I start a SIP?

Most mutual fund houses have the feature of setting up SIP for your account. Usually, the steps are as follows:

  1. The first step to beginning a SIP is to complete all KYC needs with your respective fund manager or house.
  2. One should concentrate on choosing and enrolling for their preferred SIP scheme with a fund house.
  3. To do so, go to the fund house's website and study the schemes they offer or get in touch with a Mutual Fund distributor/adviser.
  4. The next step might be to choose the best SIP for your requirements.

Contact your fund house directly to learn more.

How do I start with Spenny Wise?

Head to the play store and download our app. Choose to invest your round-ups in Spenny Wise and start your investment journey. It's effortless. However, if you need assistance, do contact our support team.

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Copyright 2021 Spenny Fintech Pvt. Ltd.
Made with ❤️ in India