Want to build wealth but don’t want to time the market, invest a lump sum, track funds daily, or take unnecessary risks? Many investors struggle with these concerns and often delay their investment journey. This is where Systematic Investment Plans (SIPs) assist. An SIP allows you to invest a fixed amount regularly (e.g., monthly) in a mutual fund scheme and helps you avoid most of the challenges listed above.
Let’s learn in detail what exactly makes an SIP so effective for wealth creation.
Power of compounding
When you invest via SIPs, you earn returns on the initial amount invested and all returns generated so far. The longer you remain invested, the more your wealth can grow. For example, a monthly SIP of ₹5,000 for 10 years at an assumed return rate of 12% can accumulate approximately ₹11.2 lakh. Continuing it for another 10 years could help your corpus reach ₹46 lakh.
Want to explore different investment scenarios? You can use an online SIP calculator to see how compounding works across different SIP amounts, return rates, and durations. The results can help you make calculated decisions and optimise your strategy.
Different SIPs for different priorities
Based on your objectives, earnings, and risk appetite, you can select from different types of SIPs, including:
- Regular SIP: You invest a fixed amount at regular intervals. It is ideal for long-term goals like retirement or kids’ education.
- Flexible SIP: You can raise or lower your SIP contributions based on market conditions or personal cash flow. Investors with fluctuating earnings might find this SIP type useful.
- Step-up SIP: You can increase contributions periodically. It allows you to keep up with salary hikes and boost corpus growth.
- Perpetual SIP: It comes with no end date and continues until manually stopped by you.
- Trigger SIP: You can start an SIP based on market conditions known as ‘triggers’. It is more suitable for experienced investors seeking tactical market entry.
Rupee-cost averaging
Rupee-cost averaging is an inbuilt risk-reducing feature of SIPs. During market downturns, your fixed SIP investment buys more units, and during bull markets, the same amount buys fewer units. By averaging the cost of investments over time, this approach helps you gain better returns.
This technique also prevents the risk of investing a lump sum during market peaks, which could lead to losses if the market later declines. Instead of worrying about market timing, SIPs help you systematically accumulate wealth through all phases of the market cycle.
Diversification
SIPs make diversification simple. You can initiate an SIP in equity funds for growth, debt schemes for stability, hybrid funds for balanced risk, and index funds for market-wide exposure. Such low-cost diversification can help you reduce risks and boost long-term returns.
Flexible investment amounts
SIPs make wealth creation possible for investors of all income groups. You can start with as little as ₹500 per month and adjust based on your affordability.
For example, if you have irregular earnings, flexible SIPs allow you to increase or decrease the contributions as needed. Similarly, if your salary increases on a set schedule, step-up SIPs can help you raise your investment by a fixed percentage or amount (usually annually).
To sum up
As you can see, SIP in mutual funds is not just an investment route but a strategy for building wealth and achieving financial freedom.
By leveraging compounding, rupee-cost averaging, diversification, and flexible investment amounts, you can grow your money systematically while managing risks. Unlike market-timing strategies, SIPs remove guesswork and instil financial discipline. These factors are the most important pillars for creating long-term wealth and securing a stable financial future.
So, do not wait any longer, and start an SIP today!
