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When is the best time to start a SIP investment?

By Shlok Kamat

19th May 2022

4 mins read

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We all have that long-distance relative who regularly invests and tracks the capital markets. They are often considered the go-to person for anything market-related. They have years of experience in the markets and have seen the SENSEX at 6000 odd levels back in 2000 and at its all-time high of 62245 last October. Have you ever wondered how they have amassed so much capital? How have they increased their wealth over time? The answer is almost always specific; they chose SIP investing.

What is SIP?

SIP, or the Systematic Investment Plan, is a mode of investment where you can invest a fixed amount at specific intervals in mutual fund schemes. SIP investment is one of the best ways to invest in mutual funds as anyone with a regular income can invest and earn steady returns. Today SIPs are not just limited to mutual funds only. One can have SIPs in stocks, gold, crypto, etc.

Why should one opt for SIP?

  • When you want to invest but do not have a large corpus: With an SIP, you can start investing a small amount, as low as Rs.500 every month, in a mutual fund scheme. You can support a small portion of mutual funds through SIP whenever you have a steady income.
  • When you want to invest in mutual funds but are cautious: SIP is suitable for those who want to test if mutual funds are suitable. By investing small amounts regularly and tracking returns, you can find if the investment is helping you with your financial objectives.
  • When you do not wish to take a risk, mutual funds and risk go hand-in-hand, but SIPs spread out the risk over a period, mitigating the potential risk. The longer your investment, the lesser the risk. Hence, the best time to start a SIP is when you want to invest in an instrument with a lower risk profile.

Benefits of SIP Investing

  • Rupee Cost Averaging: Rupee cost averaging is a concept where you purchase more units when the Net Asset Value (NAV) of the fund is low and lesser units when the NAV is high. Essentially, it averages out your purchasing costs over the tenure of the investment period. You don’t need to worry about how to time the market when you invest through an SIP.
  • Convenience:  SIP can be a convenient mode of investing. Like most investors, you may not have the time for extensive market research and analysis to adjust or balance your portfolio. So, once you pick a good fund, you can give standing instructions to the bank and let the SIP take care of your monthly investments.
  • Power of Compounding: Compounding occurs when the returns you earn on your investments start making returns. When you regularly invest through SIPs, your returns get reinvested. Over time, this results in a snowball effect that may increase your potential returns manifold. An ideal way to maximise this gain is to invest for an extended period. This also means you may benefit by investing as early as possible. Even a ten-year head-start can have a significant impact on your returns. Here’s an example to illustrate the point.

Imagine there are four investors: Varun, Gita, Henry and Mira.

Varun - 10 years

Henry - 20 years

Anurag- 30 years and

Gaurav - 40 years

All of them invest ₹2,000 per month in an equity fund through SIPs.

Assuming the equity fund offers an annual return of 12%, here’s how much each one could earn by the time they turn 60:

Name Monthly SIP (₹) No. of Years Investment Amount (₹) Wealth Gain (₹) Final Corpus (₹)
Varun 2000 10 2.4 Lakh 2.2 Lakh 4.6 Lakh
Henry 2000` 20 4.8 Lakh 15.2 Lakh 20 Lakhs
Anurag 2000 30 7.2 Lakh 63.4 Lakh 70.6 lakh
Gaurav 2000 40 9.6 Lakh 2.3 Crore 2.4 Crore

We neglect the charges incurred due to expense ratios

Bottom-line

An ideal way to make money in equities is to buy more when the markets are low and buy less when the needs are high. In an SIP you automatically end up doing so and saving yourself from the volatility of the markets. One must also realise that time spent in the market is more important than timing the market. Pullbacks and corrections are part of the market cycle, they are bound to come and you as an investor should be happy that you can buy more in these opportunities and not get scared of the short-term uncertainty.

Hence, if you are aiming for long-term capital appreciation, then start your SIP as soon as possible.

Happy and safe Investing!

FAQs

What is the best time to invest in SIP?

There is no ‘good’ or ‘best’ time to invest through an SIP. The best thing about SIP investments is that you don’t have to time the market or wait for the perfect opportunity to invest. Once you select a particular fund to invest, you can choose any date of the month and invest regularly. Automate your investments to make the entire process simpler.

What is the ideal time to continue with SIPs?

A tenure of 5-6 years is advised to create a good portfolio via SIPs

How do I start my SIP?

Most AMCs and fund houses have the option of setting up an SIP for each of their schemes. In case you invest in mutual funds directly, contact your discount broker or financial adviser for assistance. But before that, complete the necessary formalities and furnish your KYC details to the Asset Management Company (AMC).

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