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Start a SIP; Put your Savings on Auto-Pilot

Monday, February 05, 2018
By Kunal Bajaj

Kunal Bajaj, Founder & CEO,

Investing doesn't have to be hard or scary. In fact, you can make it simple and easy. Just start a Systematic Investment Plan (SIP)

A SIP is the practice of investing a consistent rupee amount in the same mutual fund scheme at regular intervals (say each month)  over a set period of time. What this leads to is good, old-fashioned common-sense: you end up buying more of a mutual fund scheme when the price is low, and buying less of the same mutual fund scheme when the price is high. At its core, a SIP is just a regular, automatic method of investing.

What are the benefits of a SIP?

  • A SIP more natural for people with income. You can set up your SIP so that you can treat it like one of your monthly bills. Most investment advisors will tell you the importance of paying yourself firstevery month. Automatic investments in a SIP are a great tool to use to help to do this.
  • You don't need to look at the index levels and worry. A SIP automatically protects you from wild market swings – so you end up buying more when prices are low, and less when prices are high. That's why even High Net Worth Individuals (HNWs or HNIs) use SIPs to invest.
  • A SIP is psychological. By making an investment every month, you spend more time in the market, rather than worry about timing the market!

Are there any disadvantages? Not really! But...
Markets tend to rise over time. This means that if you invest a lump sum earlier, it is likely to do better than smaller amounts invested over a period of time. Lump sum investing can result in better returns because the longer you have your money in the market, the better your returns are over the long run. Now, most of us don't have the luxury of receiving a huge lump sum of cash and earn it over time through employment, dividends, rent, etc. bu  t it is something to consider the next time you receive a windfall.

Remember, a SIP is not a substitute for identifying good investments. If you spread your portfolioequally among 10 different investments and one of them collapses, then you'll lose 10%. But if you put all your money in that single investment that finally collapsed, you'd lose all your money even if you invested via a SIP. After all, if the scheme you identify turns out to be a bad pick, you will only be investing steadily into a losing scheme. A SIP in a diversified mutual fund scheme reduces some market risk but only after you've done identified sensible investments.

You can start your SIP at Clearfunds today with as little as Rs 5,000. Our innovative Flexi-SIP facility gives you total control on your savings. Just tell us how often you'd like to invest, and what you'd like to buy. We'll do the rest.

The author is a SEBI-registered online investment adviser

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