![]() ![]() Here are some of the benefits that have sparked investors' interest in SIPs. Let us understand the key benefits of a SIP. But have you ever wondered, exactly what are the benefits of a SIP? This is precisely the question we will attempt to answer in this post. You must have often heard from friends, families and even from the advertisements on TV that SIPs are great for retail investors. In the next installment, Ram will get 490.20 units (Rs 5,000/10.20). Now, the NAV of the fund increases to ₹10.20 on 30th April 2022. The fund’s NAV is 9.73 as on 26th April 2022. Let's assume that Ram wants to start a SIP of ₹5,000 in Samco Flexi Cap Fund. While the concept of NAV remains the same, it is important to note that NAV changes on a daily basis. ![]() So if you pay ₹10 for a book, then the NAV of the book is ₹10. Think of NAV as the purchase price of the goods and services. Units are sold based on the prevailing NAV. When you register for a SIP, you are going to buy mutual fund units in tranches. This is usually done with the intention to discourage investors from redeeming their investments too soon Lock-in period is a time period within which investors are not allowed to redeem their investments. So essentially, Shyam accumulated more units via a SIP than lumpsum investing.Ĭreate Discipline Investing via SIP creates discipline among the investors, which results in better money management.įlexible You can stop your SIP at any time and you can also withdraw from your collected corpus at any time (assuming these units are not in their lock-in period). Now if he had invested the entire ₹ 60,000 as lumpsum in January then his cost per unit would be Rs 100 and he would have accumulated only 600 units. Since Shyam decided to invest via SIPs and not lumpsum, he accumulated 604.06 units at an average price of Rs 99.32. At the end of the six month period, his investments looked as follows. During this time, the markets witnessed its fair share of ups and downs. Let understand it with an example: Shyam is investing ₹10,000 for six months in equity mutual fund through SIP. With rupee cost averaging, you gain more units when the market is down and less units when the market is up. This results in high potential return over the long term. Rupee Cost Averaging With help of rupee cost averaging, investors can invest irrespectively of the market ups and downs. The future value of his investments after 30 years will be ₹17, 64,957. The total amount invested is Rs ₹1, 80,000. Let’s understand the magic of starting small with an example - Shyam started a SIP of ₹500 every month for next 30 years and earned a CAGR of 12% on his investments. And even after starting small, you can accumulate a mammoth corpus. Mutual funds facilitate power of compounding and helps you multiply your wealth manifolds.īegin with as little as ₹500 every month With SIP you can invest in mutual funds with as little as ₹500. On the contrary, without the power of compounding, Ram’s savings would be worth a meagre Rs 2,10,584 only. Mutual Fund do not assure or guarantee any returns.īy leveraging the power of compounding, Ram was able to accumulate a corpus of Rs 3,10,584 in a period of 10 years. ![]() ![]() The above illustration is provided to understand the power of compounding. Investing in mutual funds through a systematic investment plan (SIP) was created with a simple philosophy in mind. Why should you start investing in mutual funds through SIP? As a result, the average cost per unit is lower than the lumpsum investment made by investors. On the contrary, when the fund’s NAV falls, investors receive more units. When the NAV of a fund increases, investors receive less units. This is because SIPs facilitate rupee cost averaging. SIPs make an investor’s job easy because they don't have to worry about market volatility. The NAV of a mutual fund scheme is adjusted on a daily basis. NAV is the price at which units of a mutual fund are bought and sold. In a SIP, investors get units based on the current NAV. In a SIP, a fixed amount is debited from the investor's bank account as per their chosen frequency - weekly, monthly, or half-yearly. Better budgeting and spending management. ![]()
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