Want to Be Rich? Invest in SIPs

It is a belief in the investment world that if you want to see some progress in your portfolio, then you should deal in quantity over quality. This lead to the conclusion that you need bulk investments in order to ever see the face of profits. However, this is not the only way to make the most of your investments. And, this is where Systematic Investment Plans or SIPs come in, helping you invest a little at a time to end up with a good corpus of savings.

If you are leaving your savings each month in your bank account, be prepared to be satisfied with a measly interest rate of 4%, which will neither help you build a good sum nor counter the effects of inflation. On the other hand, even if you put away the smallest amount of ₹500 each month towards a mutual fund in the form of systematic investments, you can see your investment grow right before your eyes.

Here’s a look at the major ways in which SIPs win over bank accounts and many other forms of investment.

The Power of Compounding

The power of compounding will generate the necessary funds to make your financial dreams a reality. When you choose to put in regular investments, systematically, you gain the advantage of multiplying returns via compounding. This essentially means that the returns that you get from the investment becomes part of the investment itself in the next compounding cycle, thereby generating superior returns with each cycle. A scheme that has higher rate of return would generate positive results in a shorter timeframe, whereas a scheme that has lower return rates would generate the same results in a longer timeframe. But, the end result would be the same.

The Advantage of Cost Averaging

Cost Averaging is another powerful concept that's applicable to SIPs. When we start with a fixed amount at regular intervals across a longer time frame, those fixed regular investment would generate a better outcome than a lumpsum investment. This is because the costs would average out over the long term, regardless of market volatility.

By utilizing these two core principles of investment, SIPs have proven to be a powerful and safe tool for investment. Since, even the most skilled investor is unable to accurately time the market 100% of the times, it only makes sense to invest in a fund that includes different assets, diversifying your portfolio and relieving you of the stress of monitoring the markets.