To create wealth, you need not have a large amount of lump sum money in hand, but you may achieve your goal by investing small amounts periodically in a systematic and disciplined way over a long period of time, especially in equity-oriented products. For all these, you need to take up a systematic investment plan (SIP) to enter the equity segment. Investing in an equity mutual fund (MF) allows you to get small ownership of various established and/or growing businesses and helps you grow with them and create your own wealth.
Although prices of equity shares fluctuate directly with the volatility in the stock markets in short run, but they become stable with progress of time and provide higher return in the long term as the companies grow and generate wealth.
The best way to start investing in equity for retail investors is through SIP. It not only allows you to invest in small amounts, but also helps in reducing the impact of market fluctuations through rupee cost averaging.
Here are the benefits of investing through SIP:
Like recurring deposits (RD), investment through a SIP is possible with small amounts. You can start investing in mutual funds through a SIP with amount as low as Rs 1,000 per month or in case of certain schemes, even with Rs 500 per month.
As the money gets deducted from your bank account automatically every month on and around the SIP date, it helps inculcating a saving habit and brings discipline in investments by making you invest on a regular basis. The regularity in investment would help you in building wealth over long term.
As your money gets invested periodically through SIP, some investments are made in high market and some in low market, which helps in averaging out costs, as you get more units when the markets are low and less units when the markets are at a high. This is also called rupee cost averaging, which helps you do away with the worry of timing the market and you needn’t wait for right/lower level of market to start investing.
As you need smaller amounts to invest through SIPs, you don’t need to accumulate lump sum money and may start investing early. This gives you the opportunity to avail the power of compounding as the invested amount gets more time in the market, which increases the probability of higher returns. For example, you may generate a corpus of about Rs 1.4 crore, if you continue investing Rs 5,000 per month for 25 years, assuming a compound annual growth rate (CAGR) of 15 per cent for the investment period.
So, you may become a crorepati by investing as low as Rs 5,000 per month through SIP in equity MF.