As little drops of water make the mighty ocean, your small SIP investments today, help you build your future wealth. Check out all the benefits of investing in equity SIPs.
For decades, stocks aka equities have been considered as one of the best asset classes to give phenomenal returns. The only catch here is – choosing right stocks with good fundamentals and this is a highly complicated task, which keeps the average investor away from equities.
An Equity Systematic Investment Plan, SIP, in short, is an investment instrument that facilitates wealth creation. It helps you to avoid the inherent risk of timing the market accurately, by averaging the cost of investments over a time period.
Simply put, with small savings every month, you can easily build a big corpus for the future using SIPs. Here, in this post, you can find out all that you need to know about SIPs and their benefits.
Let’s get started.
Definition – What is Equity SIP?
An Equity SIP is an investment tool that lets you invest in the stock market in small amounts at regular intervals. By staying invested consistently, for a longer time horizon, you can reduce the risks of market volatility.
Two Broad Categories of SIPs
- Amount based SIP – As the name implies, here you invest a fixed amount at regular time intervals. Here, you get to decide the amount as well as the time interval (monthly, fortnightly, or weekly).
- Quantity based SIP – Here, the number of shares to be purchased every month (or weekly) is decided. You’ll have to pay varying amounts every month, to make the purchase.
Highlights of Equity SIP Investments
- Inculcates the Habit of Disciplined Investing
When you start an equity SIP, you commit to paying a particular amount (or purchasing a particular amount of shares) every month. This means you continue staying invested for a long time, irrespective of prevailing market conditions and personal finances.
Simply put, you need not worry about how much to invest or where to invest. All of this is pre-decided for you, and all you have to do is make regular monthly payments (which can even be automated).
- Benefits from Rupee Cost Averaging
Rupee cost averaging is an excellent tool that removes the need for accurately timing the market. All you have to do is invest a fixed predetermined sum of money at periodic intervals over a predetermined time. The amount invested remains constant.
This helps you purchase more stock units at a lower price and lesser units at a higher price. This way, you enjoy a lower average cost, which contributes to returns.
- Simple, hassle-free and convenient to monitor
If you were to invest in the stock market directly, you have to spend time and energy monitoring market fluctuations and timing the market accurately. With equity SIP, all this is done for you by your fund manager.
All you have to do is submit the application form for starting equity SIP. You can make payments using post-dated cheques or by setting up auto debit on your bank account. Additionally, the fund house sends you regular periodic statements that show the progress of your investments.
- Enjoy the benefits of Compounding
The simple and basic rule of building your wealth is – to start investments early and to stay invested. Remember that a small sum you invest today has the potential to grow into a huge corpus after a few years. This is the benefit of compounding.
With equity SIPs, you invest not only the principal but also the interest earned, thereby steadily building your corpus over time.
- You get to start Early, even if you can afford only Small Amounts
One investment mantra that stands the test of time is – the earlier you start, the quicker you reach your financial goal. Unlike other investment options, where you have to invest bulk amounts, SIPs let you start your investment with low sums. Even if you can invest only 500 or 1000 bucks, every month, SIPs help you make the most out of it.
In a Nutshell, here are the
Benefits of Equity SIP
Some of the benefits of Equity Systematic Investment Plan are
- Reduce risks due to rupee cost averaging
- Start even with very small amounts of money
- Reach your long-term financial goals
- Diversify your investment portfolio
- No need for market knowledge
- Eliminate the need for monitoring or timing the market
- A disciplined approach to investing
- Keeps your investing away from the sway of your emotions
With equity SIPs, you can enjoy the benefits of the stock market as well as regular savings. So, what are you waiting for? Choose the right fund house and get started with Equity SIPs today, and fast track your financial dreams!