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We all have a common desire, ‘to become financially strong’. But merely thinking about it will not accomplish it; We have to work hard to achieve the same. So, before moving towards it, we need to know what can help us to reach there, to make the path easier. Everyone is aware that only money has the power to make money. So, the savings that we owe are the source to reach the financial goals and SIP is the way for the same.
What is SIP?
SIP, which stands for Systematic Investment Plan, is a way of investing in Mutual Fund schemes. Under this, one has to deposit funds at regular intervals which are automatically debited from bank accounts and put into various investment schemes. It has a bundle of benefits, and offers the following benefits to an investor:
- Small amount of payment: One can start investing their money in diverse projects with just Rs. 500 or Rs. 1000, through SIP, so that there is no burden.
- Periodic Remittance: As per the nature of SIP and its working, it requires an amount payable monthly on a recurring basis and thus, helps the investor to plan his/her monthly expenditure.
- Debits money automatically: Once the investor is enrolled with the AMC to invest in SIP, he/she links his/her bank account with the same and the investment amount gets debited from there in a hassle-free manner.
- Power of Compounding: In investment, we get interest at some specific rate. It can be a simple or compound interest rate. In SIP, the investment earns returns on a compound basis. According to which, the interest earned on the principal amount is also recovered from the yield, i.e. ‘interest on interest’. For example, you invest Rs. 20000 @ 10% simple interest for 5 years. On the date of maturity, you will receive an amount equal to Rs. 30000. Whereas, in case of compound interest, the value of investment on the due date will be Rs. 32210.20. Accordingly, it is more beneficial for the investor.
- Rupee-cost averaging: Each scheme under SIP has a Net Asset Value (NAV), which is basically the unit price of the scheme based on which the units are allotted to the investor. Lower NAV means more units and vice versa. As it varies regularly, every time an investor’s money is invested in the scheme, he/she gets a different number of units. Thus, the average cost of investment goes down. Hence, investing in SIP is cost-effective as compared to others.
Apart from the above key benefits, SIP also offers the following:
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FLEXIBILITY
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Facility
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tax saving
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Diversity
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wide selection
Accordingly, if one wants to achieve financial growth and experience wealth, then SIP (Systematic Investment Plan) is one of the best options. It is capable of meeting the requirement of every investor and is beneficial to all.
The study of economics tells us about the power of savings and its relationship with investment. For the development of the economy of a country, investment plays an important role which leads to the overall development of its citizens. So, we can conclude here that by investing our savings in SIP mutual fund schemes, we can achieve our objective of experiencing financial freedom.
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