5 Advantages of Choosing a Systematic Investment Plan to Build Wealth

Just like a fit and healthy body, wealth doesn’t build overnight. It takes patience, time, and a good investment strategy. But here’s the problem: most people either wait too long to start or believe they need a huge sum of money to begin investing. That’s where a systematic investment plan (SIP) makes all the difference. It’s one of the easiest ways to invest in mutual funds, and it works for both beginners and sophisticated investors.

Many investors struggle with the SIP or one-time investment debate, wondering which is better. The reality? Both have their place, but for long-term wealth creation, SIPs offer several advantages. Let’s break it down.

The Basics of SIPs

A systematic investment plan is a way of putting a certain amount of money in a mutual fund at fixed time intervals, for example, every month. You no longer have to wait for the right time to invest in the market. You systematically invest money every month and ensure a smooth purchase cost over time, which helps minimise risks with the stock market. It’s like a step-by-step approach to wealth building.

1. SIPs Make Investing Simple and Affordable

Many people believe that you need a large sum to start investing. However, that’s not true at all. With SIP, you can start investing with as little as Rs. 500 per month. This makes it a great option for young professionals, salaried employees, or anyone who wants to invest without burning a hole in their pockets.

SIPs offer great flexibility as you can increase the amount at your convenience. If you get a salary hike, you can grow your contribution. If you have a financial emergency, you can pause or reduce your contributions. 

2. The Power of Compounding Works Best with SIPs

If there’s one secret to wealth creation, it’s compounding. The longer you stay invested, the more benefits you reap. You can take full advantage of SIPs by playing the long game.

Let’s say you invest Rs. 10,000 per month through SIP in an equity mutual fund with an expected return of 12% per year. If you stay invested for 20 years, your total investment of Rs. 24 lakh could grow to nearly Rs. 99.91 lakh.

Now, if you delay investing by just five years, the final amount drops significantly, even though you’re investing the same amount each month. That’s the power of time. Starting early is one such decision that will be beneficial in the long run.

3. Rupee Cost Averaging (RCA) Helps Reduce Market Risk

One of the biggest fears investors have is investing at the wrong time. What if the markets crash right after you invest? A SIP gives you a major advantage through rupee cost averaging.

Here’s how it works. When markets are high, your fixed SIP amount buys fewer units. When markets are low, the same amount buys more units. Over time, this balances out the cost of your investments.

Let’s understand better with the help of an example. If you had invested a lump sum of Rs. 1 lakh in January 2020, just before the COVID-19 market crash, you would have seen an immediate dip in your portfolio. However, if you had been investing through SIPs, you would have bought units at both high and low points, leading to a lower RCA and better overall returns in the long run.

4. SIPs Instill a Sense of Discipline 

One of the biggest challenges in wealth creation isn’t finding the right SIP one time investment — it’s sticking to it. Often, we promise ourselves that we’ll invest once we have “spare money,” yet something else always comes up. A systematic plan is an auto-pilot mode for investing. You set it up once, and a set amount moves from your bank to the mutual fund each month. You can think of it like an EMI that works in your favour. It builds discipline without your constant involvement.

5. SIPs Deliver Better Returns Than Trad

Earlier, people used to rely on traditional forms of investments, such as fixed deposits (FDs) and recurring deposits (RDs), for wealth creation. While these options offer immense stability, they fail to beat inflation. 

SIPs in equity mutual funds have historically delivered higher long-term returns. Sure, mutual funds are subject to market risks. But as you continue your monthly investments, you stand a better chance of smoothing out the market’s ups and downs. This makes SIPs a better choice for investors wanting to grow their money quickly.

To put things into perspective, here’s a comparison of how much a SIP and an FD would generate over a 20-year period.

As you can see, SIPs have the potential to generate more returns than FDs, making them suitable for long-term wealth creation.

How to Get Started with a Systematic Investment Plan

If you’re convinced about the benefits of SIPs but unsure how to begin, the process is simple. Follow the below-mentioned steps:

1. Choose a Mutual Fund: Find mutual funds matching your risk appetite and financial aspirations. If you have a high-risk appetite and long-term goals, equity funds make more sense. If you are looking for something that is low-risk, debt funds or balanced funds might be a better option.
2. Decide the SIP Amount: Set an amount that doesn’t strain your monthly budget but is still meaningful enough to accumulate wealth. You can always increase it later.
3. Set the Frequency: Most people choose monthly SIPs, but weekly or quarterly options are also available. A monthly SIP works best for salaried individuals.
4. Stay Consistent: One cannot emphasise enough the importance of consistency. To ensure SIPs deliver returns, continue investing regardless of market movements.

Conclusion

When it comes to building wealth, consistency is key. SIPs offer an easy, disciplined, and flexible way to invest, making them ideal for people who want to accumulate wealth without the stress of tracking markets every day.

For those who want an additional layer of security, insurance-linked investment plans from insurers like Axis Max Life Insurance can offer both investment growth and life cover. 

A systematic investment plan is not about overnight success. It’s about building wealth systematically, year after year until you reach financial independence. And that’s what makes it a powerful form of investment.

Disclaimer: The content on this page is generic and shared only for informational and explanatory purposes. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making any related decisions.

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