Do you remember the story of Charlie and the Chocolate Factory? Out of lakhs of children, only 5 lucky ones who got the golden ticket could enter Willy Wonka’s magical chocolaty world. Now, that wasn’t fair! Luckily, there’s no such inequity when it comes to investing in mutual funds. Everybody gets to enter the investment world, irrespective of their age, gender, profession, income and the like. And this is possible because of Systematic Investment Plans (SIPs). Your minimum investment in mutual funds every month could be just Rs. 500.
Sounds interesting? Let’s know more.
Basics first: What are SIPs?
There are two modes of investing in mutual funds – lump sum and SIP. With lump sum, you can invest at once but with SIPs, you get to invest in parts.
SIPs allow you to invest a fixed amount at fixed intervals in the mutual fund scheme of your choice. The interval can be daily, weekly, fortnightly, monthly or even quarterly. And your investment amount can be as low as Rs. 500.
But, will an SIP of just Rs. 500 help in creating wealth? Let’s find out!
Rs. 500 may seem like a small investment amount. But, if you give it time, you can convert that into lakhs over a period. For instance, if you start a monthly SIP mutual fund of Rs. 500 for 30 years and it offers 12% returns, you can convert your total investment of Rs. 1.8 lakh into about Rs. 17.6 lakh. That’s nearly 10 times what you invested. This is the power of compounding.
But 30 years is a long time, you may say. If you want to decrease the number of years, simply increase your SIP amount. Take the same example of the mutual fund that offers 12% returns. If instead of Rs. 500 you invest Rs. 1750 every month, you can make about Rs. 17.5 lakh in 20 years.
A mutual fund calculator can help you estimate your mutual fund returns with your chosen SIP amount and tenure.
Is minimum investment in mutual funds the only advantage of SIPs? A BIG NO!
SIPs offer several other advantages. These include:
- You don’t have to time the market:SIPs involve regular investments. You, thus, invest across different market movements and don’t subject your money to any particular market situation.
- You gain from rupee cost averaging:The fund manager buys more units when the prices are low and fewer units when they are high. As such, your cost of investment gets averaged out over a period of time.
- You tend to become financially disciplined:When you start an SIP, you give standing instructions to your bank to auto debit the SIP amount regularly. Naturally, you become more cautious in ensuring that you save enough money for your SIP instalment.
- You benefit from the power of compounding:Compounding means earning returns on your initial investment as well as the returns that keep adding to it. As mentioned earlier, with long-term SIPs, you can let your money compound and grow.
- You can choose from different types of SIPs:There are different types of SIPs available. This includes step up or top up SIPs, flexi SIPs, trigger SIPs and perpetual SIPs.
Want to begin investing quickly? Here’s how to start an SIP:
The good news is, thanks to technology, you can start an SIP online in just a few simple steps.
Step 1:There are many mutual fund companies in India. Visit the website of the fund house that you choose and search for the investment button.
Step 2:If you are investing for the first time, complete your KYC process.
Step 3:Enter your general investment details such as the name of the mutual fund scheme, bank account details, etc. Next, enter your SIP details such as the date, amount, frequency, etc.
Step 4:Pay the first SIP instalment.
Step 5:Register the mutual fund house as the biller with your bank and give it standing instructions to auto-debit your SIP instalments at your chosen frequency.
Step 6:Set an autopay mandate for the biller.
That’s it! You will have your SIP started.
Conclusion
SIPs ensure that nobody is deprived of the opportunity to gain from investments. Even someone with limited savings can build a mutual fund portfolio to create wealth in the long run.
An investor education initiative by Edelweiss Mutual Fund
All Mutual Fund Investors have to go through a onetime KYC process. Investor should deal only with Registered Mutual Fund (RMF). For more info on KYC, RMF and procedure to lodge/redress any complaints, visit -https://www.edelweissmf.com/kyc-norms
MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY
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MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY.
