Optimal financial planning with SIP investments

If you are wondering how SIP or systematic investment plans can change your life and afford you financial freedom, here is an instance to ponder upon. As an amateur photographer at 15, Ajith had one dream – to set up his own photography business, with a proper studio and the necessary equipments, many of which cost exorbitant amounts. While he was exceptional at his craft, he did not know how to accumulate the corpus required to give wings to his dreams and that is when a conversation with his Mathematics teacher changed his life. His teacher told Ajith about the benefits of SIP and prompted him to start SIP with whatever money he could invest. Investing in SIP could be a great way for Ajith to undertake financial planning and build the corpus required for his studio. This happened 10 years ago and over the last decade, Ajith continued earning money on the side and investing via SIP. With the corpus thus created, he managed to set up his dream studio in January this year, thereby depicting the power of SIP and long term investment.    

Benefits of SIP

From financial planning to retirement planning and achieving all your varied goals, an SIP in mutual funds can go a long way towards offering you optimal monetary freedom. An SIP is a systematic and disciplined way of investing in a mutual fund scheme, on a regular basis and given the types of mutual fund schemes available today, you can easily find a fund that is best aligned with your requirements. Here are the main benefits of SIP which you should know about, before starting your investment journey.

• Simple and convenient: Given their systematic nature and auto-debit facilities, SIP offers a hassle-free investment method, requiring minimal effort to initiate and maintain. Investors can set up automatic deductions from their bank accounts, eliminating the need for frequent manual transactions. This simplicity fosters ease of use and accessibility for individuals of varying financial backgrounds and investment knowledge levels.
• Super flexible: SIPs provide investors with the flexibility to choose their investment amounts and frequency of contributions. This adaptability accommodates diverse financial goals, allowing investors to adjust their SIPs according to changing circumstances, such as income fluctuations or market conditions. In fact, you can start an SIP with as little as INR 500 per month, and increase the amount as you start earning more, thereby ensuring an optimal investment journey which does not end up putting unnecessary pressure on your finances.
• Power of compounding: Through regular and systematic investments, SIPs harness the power of compounding, wherein returns generated on initial investments are reinvested to generate additional earnings. Over time, compounding can significantly amplify the growth of invested funds, enabling investors to achieve their long-term financial objectives. According to Darren Hardy, author of The Compound Effect: Jumpstart Your Income, Your Life, Your Success, “The Compound Effect is the principle of reaping huge rewards from a series of small, smart choices.” And that is exactly what an SIP allows you to enjoy.
• Rupee cost averaging: SIPs employ the strategy of rupee cost averaging, whereby investors consistently purchase units of an investment at varying prices over time. This approach reduces the impact of market volatility on the overall cost of investment, potentially mitigating risks and enhancing returns over the investment horizon.
• Ability to start small: SIPs offer the advantage of low entry barriers, allowing individuals to commence investing with modest amounts. This affordability encourages participation from a broader segment of the population, fostering financial inclusion and enabling individuals to embark on their wealth-building journey with minimal capital.
• Boosting discipline: By promoting regular and disciplined investing, SIPs instil valuable financial habits among investors. The systematic nature of SIPs encourages individuals to adhere to their investment plans, fostering patience, consistency, and a long-term perspective, which are integral to achieving financial success.

Setting up an SIP

Beginning an SIP investment is a straightforward process and you can start on this fulfilling journey by first choosing a mutual fund scheme which is well aligned with your investor profile. For the same, you should consider factors such as your risk appetite, return requirements, time horizon and investment goals. Following this step, determine your investment frequency, and establish the SIP within the chosen scheme, with the auto-debit option if you wish to automate your investment. Subsequently, the designated SIP amount is automatically deducted from the investor's bank account on a predetermined date. For optimal guidance throughout this SIP venture, consulting a financial advisor is advisable as they can offer comprehensive insights into your financial needs and provide tailored assistance throughout your SIP investment journey.

While Ajith was not aware of all the nuances of SIP before investing, he found his decision bearing fruit in just a decade. If you also wish to optimise your financial planning, then an SIP could be the best way forward.

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