Financial freedom – a word which we all love and desire and yet which seems like an Utopian reality! Handling our finances effectively and having a stable financial position is considered difficult by many. Call it lack of knowledge or ignorance, very few people actually master the art of managing wealth.
It’s easy to get confused in the din out there – ULIPs, ‘child plans’, ‘pension plans’, chit funds and even the neighbourhood ‘aunt’ peddling a Life-changing policy. These complex products are poor investments.
There is no better wealth creation engine than the equity market. Equity markets give 12-15%+ annual returns over the long term. And an SIP in a mutual fund is the best vehicle to invest, for those who don’t understand the markets.
A monthly automatic investment in a mutual fund (called SIP or Systematic Investment Plan) ensures you put away money regularly for the future. You can start with as low as Rs 500 per month and watch your wealth grow over a period of time.
1. Starting with what you can and what you have
Starting an SIP does not require large amounts of money; you can begin with an amount that is most comfortable for you. We always want to wait till we have a large amount or an ideal amount to begin; SIP brings in the beauty of investing small amounts regularly to build wealth over time.
2. No need to time the market & leaving your money to experts
As a retail investor it is probably impossible for one to get the market timing right and it is in all honesty not even our job. Left to the experts i.e the fund managers who have their strategies clear investing through an SIP brings in the benefit of rupee cost averaging and skipping the need to invest on the day the markets are at a low.
3. Diversifying your investments
SIPs are not a fund, SIPs are not all risky, and you won’t lose your money in an SIP should you leave it in the hands of the right advisors. SIPs can be made in debt funds (liquid, short term or long term) with minimal risk and serve as an alternative to your savings bank or fixed deposits, in case of looking at options with exposure to equity they can be made in large cap, multi cap, mid cap and other sectoral funds that bring in varying risks and proportion of risk. For instance, a monthly amount of Rs 10,000 can be diversified over varying periods & various funds.
4. Your behaviour can’t affect this discipline
With an SIP, we commit to certain amounts to be deducted on certain dates of the month, the dictate being that we ensure that amount is available in our banks lest the investment bounces. Our behaviour and fears cannot influence this form of investing as we typically have to sign up for a period of 12 months at least and should stick to it. SIPs are a great route of investing especially for those who find it hard to stick to plans as these force you to.
5. Low cost investing and flexibility
For the expertise provided with a dedicated fund manager for fronting your money mutual funds come in at a very low expense ratio; which if compared is dramatically lower than the costs we are unaware of in certain insurances we buy. This is a fairly small amount to pay for specialised investing. Additionally, mutual funds provide you the flexibility to stop/ start investing at any point and restart when you wish.
(By Dipika Jaikishan, VP–Business Development, Fisdom)