Put your savings plan on auto-pilot. Stop thinking and start investing the smart way

Timing the Market is like catching a bus that comes and goes as it pleases. If you were to buy or sell all your stocks at one go, you could lose money in the event of a sudden downturn. You could also be late to catch the market on an upswing — and miss out on an opportunity to make money.

A SIP, or a Systematic Investment Plan is a safer, more disciplined investment approach.

A SIP lets you automatically invest a predetermined Amount at regular monthly or quarterly intervals in your chosen Mutual Fund scheme. It protects you from the ups and downs (volatility) of the market and helps you develop a habit of saving and investing.

How SIPs Work? Fixed investment amounts at regular intervals.

Think of SIPs as EMI deductions (in the sense that they are debited from your account at fixed intervals) — but with the difference being that these are actually investments instead of expenses. This means you will buy units of a mutual fund (or stocks) on a given date on a monthly (or quarterly, bi-annual, or annual) basis. In other words, SIP help you to customize your own savings plan.

You can invest a fixed amount in a scheme every single month through a post-dated cheque or an ECS mandate/auto-debit facility. All you have to do is fill in an application form and a SIP mandate form specifying your SIP date (the date on which your investment amount will be deducted automatically from your account). The completed forms and the cheque should be dropped off to the office of the Mutual Fund or the nearest service centre of the Fund’s Registrar & Transfer Agent.

What Are The Benefits of a SIP?

1. Rupee-Cost Averaging: This eliminates the stressful work of continually monitoring market ups and downs. With rupee-cost averaging, you invest a fixed amount at regular intervals regardless of the Mutual Fund’s Net Asset Value (NAV). As a result, when the NAV goes up, you buy fewer units and when the NAV comes down, your money buys more units. This is exactly what savvy investing is about: buying more when the price is lower and buying less when the price is higher.

Compound interest is the eighth wonder of the world. He, who understands it, earns it … he who does not … pays it - Albert Einstein

2. Power of Compounding: A SIP allows you to remain invested in the market over a longer period of time in order to reap the money-making potential of compounding.

3. Disciplined Saving: The key to wealth creation is discipline. A SIP helps you develop a habit of disciplined saving that is crucial to your investment success.

4. Safety: A SIP enables you to invest in smaller amounts over a longer period of time rather than going all in with a lumpsum investment at one go. This protects you from market volatility and reduces the effects of market dips and rallies on your investment.

5. Flexibility: You can discontinue a SIP and cash in on your investment at any time, although this isn’t advisable, of course. Most schemes also allow you to increase or decrease the amount of your investment depending on your goals and strategy.

6. Investing little amounts: SIPs enable even smaller investors to buy equity Mutual Funds, since the minimum investment in many funds can be as low as Rs 500. Online advisors like Clearfunds let you easily click a button to change your investment amount and how often you invest when you get a big bonus or have an unexpected expense.

7. Discipline: A SIP instills investment discipline, as the amount to be invested is deducted automatically from the investor’s bank account.

A SIP is a hassle-free method of investment for those who lack the knowledge or the time to actively invest in the equity market. A SIP protects an investor from the ups and downs of the market, compounds your wealth over time and instils a disciplined saving habit that is crucial for investors to achieve long-term investment goals.

What is a Systematic Investment Plan? was originally published in Blog | Clearfunds on Medium, where people are continuing the conversation by highlighting and responding to this story.