Why Should You Invest In SIP – Know The Benefits

SIPs all the way

The concept of Systematic investment plan has grown steadily over the recent past and has developed a huge fan following. It has many takers, due to the multiple benefits on offer such as it inculcates disciplined approach towards financial savings, light on wallet, it helps investors ride the market volatility by averaging out the cost as they invest a fixed sum regularly at various levels and also helps in benefitting from the power of compounding, which means longer the investment horizon, the greater the benefit.

Systematic Investment Plans can be more meaningful if you have a well-defined end or goal in mind.

For a more focused approach to systematic investing you can begin by first answering these questions:

Do I need to start a SIP today?
What is the specific goal I hope to achieve with the SIP?
What is the quantum of money I need to mobilize to meet this goal?

The questions should make the investor commit a specific goal against the SIP. Also, he/she is obliged to specify the sum of money he/she believes is necessary to achieve the goal via SIPs.

SIPs for the right reason

Let's see how Virat, a 30-year old media professional, used the SIP route to achieve a key life stage goal.

Virat wishes to send his son to the best medical college. A rough calculation tells him the cost of providing medical education for his son 15 years from now works out to ` 30 lakhs. Virat chooses the SIP route to save money for his son's education.

Virat scores a goal with SIPs

Virat's goal	Son's medical education
Investment tenure (years)	15
Amount to be mobilized at end of tenure (`)	3,000,000
Investment vehicle	SIPs
Assumed rate of return (CAGR)	12%
Monthly SIP (`)	6,000

(This is for illustration purpose only.)

Clearly, Virat's association of a goal (child's education) with the SIP gave a lot of seriousness and credibility to his investment plan. This kept him focused from the outset and made him invest regularly in the SIP. He was well aware of the fact that he could not afford to slipup, given that it's his child's education at stake.

This demonstrates that systematic investment approach is critical in achieving cherished financial goals. But first investors must answer the questions - why invest, how much to invest and for how long to invest, before initiating the SIP. This will bring much-needed focus and discipline in the investment process and pave the way for a more assured financial future.