What is a Mutual Fund
How SIP's work
It’s simple. When it comes to creating long term wealth from equities, our biggest enemies are our own greed and fear. Either we fear volatility and sit on the side lines indefinitely as opportunities pass us by, or we jump in to invest after markets have gone up, succumbing to greed. Even the best, most seasoned investors in the world have fallen prey to their own behavioral pitfalls.
SIP’s put your equity investments on auto-pilot and take away the need to time the market (an impossible feat). It’s a well-known fact that predicting short term market movements is impossible, and trying to do so can make us miss out on market rallies or incur losses, eventually losing faith in the wealth creation potential of equities.
SIP’s also help us inculcate savings discipline, and maintain a healthy savings to surplus ratio, which is a key element of wealth creation from your regular savings. Using SIP’s, you can deploy a predetermined sum of money every month or quarter (just like an EMI, but in reverse) by issuing a standing instruction to the Asset Management Company to auto-debit your account on a fixed date. This takes away the need for you to time your investments, and puts you firmly in the driver’s seat on your journey to wealth creation from equities!
To see how the compounding effect of SIP’s work, check out our SIP calculator
What are the benefits of investing into SIP’s?
Long Term Wealth Creation
By investing through SIP’s into high growth equity mutual funds for the long term, you can outpace inflation and create long term wealth by harnessing the power of the stock markets. In the long run, equities tend to outperform traditional assets.
Rupee Cost Averaging
SIP’s make the ups and downs of the markets work in your favour through Rupee Cost Averaging. It’s simple – when markets go up, you buy fewer units. When they fall, you buy more. In the long run, the cost of your units gets neatly averaged out.
Mutual Fund SIP’s enforce savings discipline by debiting your account for a fixed amount each month. This puts you firmly on track to meet your and your family’s financial goals without having to take expensive loans.
By continuously compounding your savings, Mutual Fund SIP’s help you earn ‘returns on returns’, leading to explosive wealth creation in the long term. There’s a reason why Einstein called compounding the “eighth wonder of the world”!