Investors are entering the equity market through SIPs. Here’s why you must, too
Investors are pouring in mega-bucks in equities through mutual-fund systematic-investment plans, popularly known as SIPs. If you are not among those who have cumulatively invested over Rs 4,700 crore in mutual funds, you are missing out – big time.
More investors are warming to investing in mutual funds through SIPs because of the convenience and the inherent strengths of SIPs to average out buying costs over time, and building a healthy corpus of mutual-fund units. In June 2017, the total collected by mutual funds through SIPs surged to an all-time high of Rs 4,744 crore.
Cumulatively, investors have parked Rs 43,921 crore through SIPs. On average, investors are parking approximately Rs 3,300 a month in SIPs.
SIPs are investment tools that allow people to invest a fixed sum at regular intervals in a scheme. Being very similar to a bank recurring deposit, this style of investing in the equity market is gaining popularity as individuals who receive fixed salary income find it an easy and convenient to invest in the market.
Through a systematic investment plan, you can invest as little as Rs 500 a month, which could go up to Rs 50,000 a month — and even higher. Hence, even very small investors can benefit in a big way through SIPs. For as little as Rs 500, you can start a wealth-building account for the long run.
SIPs automatically deduct a fixed sum from your bank account on a date of your choice, and park that money in the mutual-funds schemes you want. Against this, you will get mutual-fund units. These units are available at the then net-asset value, which depends on the price on the day of the automatic deduction.
For example, if the net-asset value of the fund is Rs 50 on the day of your investment, an investment of Rs 500 will result in you getting 10 units of that mutual-fund scheme.
Over time, through ups and downs in the market place, and if you regularly maintain your investments through SIPs, you should have accumulated a sizeable corpus of fund units. Depending on the net-asset value of the fund, when you redeem or sell the units, you secure the gains in the market.
If you are considering SIPs, remember that it works best when you see both the up and down cycles in the market. That’s because when the markets are on a down cycle, investors can accumulate more units and quantities of the same shares for the same amount invested.
Remember that the wealth through SIPs will be created if you continue for a long while. Equity markets have been known to deliver returns over very long periods. But in the short run, they tend to be volatile. Hence, continue your SIPs, ideally for over three years or more without breaking it. That should serve your corpus well.
