City, country, 14 August 2024- SIPs, or Systematic Investment Plans, have gained a lot of popularity among Indian investors lately. The main reasons include their flexibility, convenience, and tax benefits. Moreover, the SIP approach yields phenomenal returns while making investors more disciplined and consistent in saving and investment habits. This article will discuss the role of SIPs in financial discipline.
How do SIPs Work?
Knowing how SIPs work is important to understanding how SIP investment assists financial discipline. Like a conventional recurring account, the investor invests a specific amount in a mutual fund scheme at a pre-determined date, usually monthly. The primary difference is that SIPs are market-linked and deliver varying returns.
Rather than investing a lump sum in a mutual fund, SIP plans allow people to invest in them through regular instalments. The flexibility of investing small amounts in mutual funds is one of the main factors driving the popularity of SIP schemes in India.
How Investors Become Financially Disciplined with SIP Investment?
Here is how SIP investment makes investors more financially disciplined:
- Requires Consistency: Time is of the utmost importance in modern life. Since SIPs require consistent investments at regular intervals, investors cultivate consistency in their financial behaviour. SIP plans ensure that the investors earmark a portion of their income for investment, breaking down their financial contributions into smaller, more manageable instalments.
- Helps Set Practical Goals:Financial success thrives on targets, objectives, and goal setting. Extending these principles to the financial strategy helps investors set clear and practical goals. Whether they want to go on a foreign trip, purchase a property, or save for their child’s education or marriage, they can align their SIP investment with their goals. By setting realistic goals, they can get direction and proceed in their financial journey with a purpose. SIPs push them towards their milestones, turning their dreams into reality.
- Diversifies the Investment Portfolio for Long-Term Financial Growth: A diverse investment portfolio is essential for excellent financial planning. SIPs are an easily manageable way to diversify the portfolio, as they spread investments across multiple asset classes. Their dynamic nature reduces dependence on a single asset class’s performance, allowing systematic portfolio diversification. In a variable market scenario, investment diversification helps achieve long-term financial growth while minimising risk.
- Promotes Income and Expenses Management: When investors know they must invest some surplus amount in an SIP plan, they start managing their income and expenses for effective financial planning. Financial management includes tracking expenses, creating a budget, controlling unnecessary expenditures, etc. Depending on their SIPgoals and requirements, they may tweak their budget to save and invest the maximum possible.
- Encourages Updation: When an individual invests in SIP, they must regularly monitor their SIP’s performance to track their financial growth. For that, they must stay informed about the latest market trends, which empowers them as investors. They can use this information to navigate through the complex world of financial markets. They can significantly improve their financial well-being by making informed decisions, adjusting their SIP amounts, rebalancing their portfolio, and exploring more investment opportunities.
- Helps Create an Emergency Fund: Investing in SIPs cultivates the habit of saving money to build an emergency fund. This fund is a safety net during unexpected circumstances like job loss, last-minute expenses, medical emergencies, etc. SIP offers a disciplined way to regularly contribute to an emergency fund, preparing the investors for sudden expenses coming their way.
How Does SIP Calculator Help?
Those who want to invest in mutual funds through SIPs will find an SIP calculator for mutual funds a great financial tool. It is a free-to-use online tool, available on the websites of top financial institutions like Kotak Mahindra Bank, which calculates the returns you can earn on SIP investments. Based on a few necessary details entered in the calculator, the tool tells the required monthly investment amount based on the corpus target. Investors can use this information as a roadmap to achieve their financial goals while staying financially disciplined.
The calculator automatically computes SIP variables in seconds without any manual calculations. Here is how to use the online tool:
- Enter the monthly investment amount
- Select the investment period
- Give an idea of the expected annual returns
A SIP starts with an investment of as little as Rs 100 per month, depending on the target amount to accumulate. Based on the results from an SIP calculator, investors can budget their finances and invest an appropriate amount regularly.
A Systematic Investment Plan is a structured approach that investors can use to achieve their financial goals. At the same time, they can develop a disciplined habit of budgeting and investing regularly. They can yield considerable returns to grow their wealth by staying invested for a long duration. Moreover, SIP has minimal risk and helps meet financial goals without stressing finances with lump sum payments. With diligence and patience, you can start your SIP journey and stride towards financial independence.
Media info:
Name: Kotak Mahindra Bank
Organization: Kotak Mahindra Bank
Website: https://www.kotak.com/
Email: info@kotak.com
Address: Kotak Mahindra Bank, Bandra Kurla Complex, Bandra East, Mumbai, Maharashtra 400051
