Systematic saving involves putting money aside automatically on a regular basis. This approach has several advantages. First, setting a certain amount in the monthly budget is the first step to prioritizing savings. After a while, saving then becomes a habit.
Stock market fluctuations are difficult to predict. By investing only once a year, a larger amount is invested on a very specific date, which increases the risk coefficient. Investing smaller amounts frequently helps level out the cost of investing.
The composition of the return
The strength of compound returns is that over time the investor receives both a return on the amount invested and a return on all the returns accumulated each year.
In the case of SIP, the compounding gives impressive benefits to the investors, especially in the long run. Let us take an example to understand why “SIP haisahi investment planning”.
If you invest each month Rs. 4000 in a SIP with an expected return rate of 7% for a period of 10 years, then at the end of the 10th year, you will be able to get almost 7 lakhs. Amazing, isn’t it?
The logic here is that due to the increase in the savings base to which the rate of return applies, your gain increases each year. That’s the beauty of compounding.
Gains in one period generate additional gains in subsequent periods. By increasing the amounts invested and extending the investment period, the benefits of compounding become even more pronounced.
Time is the key element. This is good news for young investors who may not have a lot of money, but who have the advantage of having a considerable investment horizon in front of them. The more time you have, the better the chance that the gains from compounding will enhance your initial investment, which is an ideal scenario.
Apart from the compounding, SIP also has a lot more interesting offers such as:
You gradually build up capital
With the investment plan, you automatically invest a fixed amount in a basket of funds at regular intervals. You can thus gradually build up a good amount of capital.
You avoid timing errors
It is not easy to determine the right time to invest. By investing a fixed amount each month, you spread your investment over a longer period.
You will sometimes buy at a low price, sometimes at a high price. But you will considerably reduce the risk of making a timing error. Because your capital will be built up at an average price.
You benefit from the compounding effect
In this Type of Mutual Fund Scheme, the longer you invest your money, the more likely the end result is to be positive. In the long term, a smaller amount invested at a young age pays more than a significant amount invested later and over a shorter period. Those who invest with a long-term horizon maximize the growth of their investments thanks to the compounding effect. Indeed, investment income is systematically reinvested. Even a modest monthly amount will generate significant capital over time.
Having read the numerous advantages an SIP can bring to you with its low-risk nature, we are sure that you would not love to miss this opportunity of generating wealth along with capital security. Start investing in SIPs and ensure that you are doing the correct investment planning for your future with RKFS.