As we all agree, it is not possible to time the market, and therefore a Systematic Investment Plan (or SIP) is a preferred mode of investment to invest in mutual funds. SIPs work on the principle of Rupee Cost Averaging, bringing down your average cost per unit in the long term horizon.
As the term indicates, it is a systematic method of investing fixed amounts of money periodically – period could be monthly, quarterly or semi-annually, it also provides the flexibility of increasing or decreasing the SIP amount.
Let us now look at 5 reasons to boost up your SIPs:
Reason no.1: Financial Discipline: You would have ascertained the SIP amount some time back. If your disposable income has increased, your increased savings can find the right channel through SIP. Consider the impact of inflation on your SIP as well, and increase the SIP amount as per your means.
Reason no.2: Removing anomalies in your portfolio: Certain investment decisions would leave your portfolio unbalanced e.g. higher asset allocation to a given mutual fund. You could rebalance the portfolio by increasing SIP in the given mutual fund where you wish to increase the allocation. Again following the SIP approach is better than doing this in one-shot through a lump sum investment.
Reason no.3: Get higher Benefit of compounding: Compounding occurs when the returns you earn on your investments start earning returns. When you invest regularly through SIPs, your returns get reinvested. When you boost your SIP, the money invested earlier, over time, results in increasing your potential returns manifold.
Reason no.4: Building a bigger corpus: SIPs provide greater flexibility in investing. An aim to build a bigger corpus is an incentive to look at increasing your SIP. It will have a very positive effect on your final goal amount.
Reason no.5: Last but not the least, Disciplined Investing: An approach to strengthen your SIP say 5% every year, but in line with your asset allocation and long term goals, brings the next level of discipline in your already disciplined SIP approach of investment.
Now you know that SIP is a great way to invest and boosting your SIP each year in a disciplined manner helps your corpus immensely. We hope you have learnt something new today, as it is our constant endeavour to educate and make an ‘investor’ a ‘sound investor’! Happy Investing!