What’s SIP investing? Here’s a quote that perfectly sums up the idea of SIP investing:
“We don’t have to be smarter than the rest. We have to be more disciplined than the rest.” — Warren Buffet
You might think you need to be a financial genius to get good returns, but Warren Buffet, one of the most legendary investors, disagrees.
You might come across a lot of distractions while investing or searching for the right funds. Turn on any business channel or read business newspapers, and you’ll be bombarded with views and opinions on which stock to buy or sell. Social media is no different. And sometimes, the news is filled with gloom and doom about low growth and unemployment, making you feel like selling your stocks.
These distractions can often make starting your investment journey feel overwhelming, causing you to push your actions. But what if you could start your investment journey with ease and regularity while potentially earning impressive returns?
That’s where SIP, or Systematic Investment Plan—a superhero in the world of mutual funds. Let’s dive into SIP investing and explore its benefits.
What is SIP in Mutual Funds?
SIP investing is like setting your investments on autopilot. Instead of investing a lump sum all at once, you invest a fixed amount at regular intervals—be it weekly, monthly, or quarterly. It’s simple, hassle-free, and a great way to build a disciplined investment habit.
Read more about SIPs here.
SIP in mutual funds allows you to start investing with a small amount and reap significant returns in the long term. You can also automate monthly payments in SIPs. Apart from the numerous benefits of SIP investing, the dollar/rupee cost averaging feature of SIP truly stands out from the rest.
Dollar/Rupee Cost Averaging: The Secret Sauce
This might sound like a fancy term, but it’s pretty straightforward and powerful.
When you invest a fixed amount regularly, you buy more units when prices are low and fewer units when prices are high. Over time, this averages out the cost of your investments, reducing the impact of market volatility.
Let’s understand this with the help of an example –
Imagine you decide to invest ₹10,000 every month in a mutual fund. Here’s how dollar/rupee cost averaging works in your favour:
- In January, the NAV (Net Asset Value) of the fund is ₹50. You buy 200 units.
- In February, the NAV drops to ₹40. You buy 250 units.
- In March, the NAV rose to ₹60. You buy 166.67 units.
By the end of three months, you have invested ₹30,000 and own 616.67 units. The average cost per unit comes to around ₹48.6, which is lower than the highest NAV you faced during this period.
This averaging effect can be particularly beneficial in volatile markets.
SIP in mutual funds simplifies the investment process, reduces the need for active management, and focuses on long-term growth, making it a practical form of passive investing.
Other Benefits of Investing in SIP
1. Regular and Automated Investments
SIP investing involves making regular, fixed investments in mutual funds, typically on a monthly basis. This automated approach reduces the need for active decision-making and market timing.
2. Long-Term Focus
SIPs encourage a long-term investment perspective, aligning with the principles of passive investing. Instead of frequently buying and selling based on short-term market movements, SIPs promote steady growth over time.
3. Low Maintenance
Once set up, SIP in mutual funds require minimal maintenance. Investors do not need to constantly monitor and adjust their portfolios.
4. Discipline and Consistency
SIP investing instills financial discipline and consistency in investors. By committing to regular investments, investors follow a structured plan, avoiding the pitfalls of emotional and reactive trading.
Start investing in Index Funds.
Growth of SIPs over the last nine years
Indian Mutual Funds currently have approximately 8.99 crore (89.9 million) SIP accounts, through which investors regularly contribute to various mutual fund schemes.
SIP Contribution (in crores)
| Fiscal Year | Contribution Amount (₹) | YOY Growth (%) |
|---|---|---|
| FY 2023-24 | 1,99,219 | 28% |
| FY 2022-23 | 1,55,972 | 25% |
| FY 2021-22 | 1,24,566 | 30% |
| FY 2020-21 | 96,080 | -4% |
| FY 2019-20 | 1,00,084 | 8% |
| FY 2018-19 | 92,693 | 38% |
| FY 2017-18 | 67,190 | 53% |
| FY 2016-17 | 43,921 | - |
Since FY 2016-17, SIP contributions have grown significantly, reaching approximately ₹2,00,000 crore in FY 2023-24. In June 2024 alone, the total SIP contribution was ₹21,262 crore. This trend indicates a growing preference for investing through the SIP route.
Source: Association of Mutual Funds in India (AMFI)
But why is SIP Investing a Better alternative than Lump Sum Investing?
Lump Sum investing means putting in a large amount of money in the market all at once. While this can lead to substantial gains if the market is on an upward trajectory, it also exposes you to market volatility. Investors often find themselves glued to market news, monitoring their investments more frequently, and experiencing the stress that comes with it.
SIPs, on the other hand, offer peace of mind amidst the market volatility—be it a bear or a bull market.
In a bear market, your regular investments buy more units as prices drop. When the market recovers, these units appreciate, potentially leading to significant gains. In a bull market, you continue to invest regularly, benefiting from the market’s overall upward trend without the stress of market timing.
How Can SIP Help You Reach Your Goals?
SIPs are like the tortoise in the classic race against the hare—slow, steady, and ultimately victorious. Here’s how:
- Goal-Based Planning: Whether it’s a dream vacation, a child’s education, or retirement, SIPs can be tailored to meet your specific goals.
Using a SIP calculator, you can plan exactly how much you need to invest regularly to reach your target amount. - Disciplined Saving: With SIPs, you automate your savings. This removes the temptation to spend the money elsewhere and helps inculcate a saving habit.
- Flexibility: SIPs offer immense flexibility. You can increase or decrease your investment amount, take a break, or stop the SIP altogether without any penalties.
- Power of Compounding: Over time, the returns on your SIP investments are reinvested, leading to compound growth. This snowball effect can significantly boost your wealth.
How to Use a SIP Calculator:
Using a SIP calculator is simple. Just input:
- Monthly investment amount (e.g., ₹1000)
- Investment period (e.g., 20 years)
- Expected annual returns (e.g., 13% assumed for returns in equity mutual funds)
For example, investing ₹1,000 per month for 20 years at a 13% return results in a corpus of ₹11,45,519, with ₹9,05,519 as the estimated return.
Let’s consider another scenario:
If you invest ₹2,000 monthly for ten years at a 10% return, given the market sentiments, your total investment will be ₹2,40,000.
By the end, your investment of ₹2,40,000 could grow to approximately ₹4,13,104.
Try it yourself and see the potential of your investments with this SIP Calculator.
You can also use a goal-planning tool to help plan your investments to achieve a specific goal. By answering a few questions, you’ll get a clear idea of how to best allocate your funds.
Summing up!
Starting your investment journey doesn’t have to be complicated or stressful. With SIPs, you can zap through market volatility, zoom towards your financial goals, and do it all with ease and peace of mind. So, why wait?
Start your SIP today and let the magic of compounding work its wonders.
Interested in how we think about the markets?
Read more: Zen And The Art Of Investing
Watch here: Investing In Passive Funds
Start investing through a platform that brings goal planning and investing to your fingertips. Visit kuvera.in to discover Direct Plans of Mutual Funds and Fixed Deposits and start investing today.
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DISCLAIMER: Mutual Fund investments are subject to market risks. Read all scheme related documents carefully. Registration granted by SEBI, membership of BASL (in case of IAs) and certification from NISM in no way guarantee performance of the intermediary or provide any assurance of returns to investors. Investments in securities market are subject to market risks. Read all the related documents carefully before investing. The securities quoted are for illustration only and are not recommendatory.
