Systematic Investment Plan (SIP) route is one of the best approaches to investing in mutual funds. It is not only safer but an extremely convenient way of building wealth over the long term. Unfortunately, not many investors are able to harness the power of SIPs to their advantage. It has often been noticed that when the markets go down, many small investors stop or terminate their SIPs. This, in fact, defeats the whole purpose of investing through this mode. By stopping the SIP during a market slump, the investor forgoes the chance to buy more units at a lower price, which can yield a good return when the market turns around. Another major problem we face is that most of our investments are undertaken in a haphazard manner, without a goal in mind. Investing only to make money is a vague idea but if you link it with the goals that you have in mind, you will be headed in the right direction. SIP brings about a discipline to your investing process. The logic is: If we earn regularly and spend regularly then why not invest regularly.

SIPs are not only for the long term. You could be saving for the down payment of your house, which is due 15 months in the future or for your child’s college education, which will begin three years from now. Here are some ways you can get the best out of your SIPs. Whether it is linking SIPs to goals, or increasing the amount every year in line with the increase in income, these ideas will help you maximize the gains from your SIPs.

Link your SIP to goals:

As an old saying goes, “A Goal without Plan is just a Wish”, so every investment plan you create should be backed by a goal.  It could be a short-, medium- or long-term goal. You can create an SIP for every goal, whether it is buying a car, going on your annual vacation or paying for your kid's education. However, you should be mindful of the fact that equity funds should be considered only if the goals are long-term in nature. Depending on the tenure, you should choose the level of exposure to equity. Thus, for your children’s education fees, which are due every year, it is best to start an SIP in a liquid fund.

It has been observed that stocks with good fundamentals are considered one of the best investment avenues. Historically investment in equity stocks has given phenomenal returns amongst all the other asset classes if investment was done with discipline and with long term time horizon.

Selection of stocks and decision of the right price to enter is an integral part of equity investment and this is the step where most of the investors falter. Equity Systematic Investment Plan (SIP) is an instrument which helps you avoid the risk of timing the markets and facilitate wealth creation in a disciplined manner by averaging cost of Investments. Small savings create the big corpus for future. Let’s find out what a SIP is and what are its benefits.  

Features of SIP

For long-term wealth creation through equity market you need discipline and long term time horizon which are inherent features of SIP. The following features of SIP makes it fit for equity market.

1.     Simple and disciplined approach towards investment

2.     Investment possible with small sum of money invested regularly to accumulate wealth

3.     Based on concept of Rupee Cost Averaging

4.     Flexibility in terms of  Amount or Quantity based SIP

5.     Flexible intervals like Daily/ Weekly/ Fortnightly/ Monthly basis

Benefits of SIP 

As common investor doesn’t have enough time and resources, SIP proves to be a viable option for them. Listed below are the important benefits of this instrument.

1.     Reduces Risk because of Rupee Cost Averaging

2.     SIP can be started with very small amount of money

3.     Timing the market is not necessary

4.     Long term financial goal can be aligned with SIP

5.     Disciplined approach towards Investment helps in controlling the emotions.

Selecting Companies to Invest In 

Once you have decided to go for SIP the very next question which pops up is the stock selection. The thumb rule is to go for the companies you want to own if given a chance.

Some stocks are great for the SIP mode of investing. These are stocks we should accumulate, in small steps as they represent long term value. They are companies which have proven track record. These companies have a solid, stable and ethical management and operate in profitable area with long term growth prospects. 

Top up anytime

SIPs are about fixed regular investments. But if you come upon a lump sum, such as a bonus, you can put that too in the same account.