The magic of SIP!!

I wanted to write on a subject that encapsulates a lifetime remedy to long term wealth creation. A one-stop-shop thatliberates investors from a multitude of investment options which confuses rather than convince. It is none other than SIP i.e. Systematic Investment Plan. A simple strategy to invest a fixed amount into mutual funds during regular intervals for a specified duration. This modest method exemplifies the power of compounding and cost averaging.

Rupee Cost Averaging& the power of compounding

In case of SIP’s into equity-based schemes, if the market rises you will gather fewer units and conversely if the market corrects you will accumulate more units and hence averages your cost of purchase. This approach also ensures that investors don’t time the market which is humanly not possible.

The great Albert Einsteinonce said “Compound interest is the eighth wonder of the world. He who understands it, earns it and one who doesn’t, pays it.” An SIP of Rs 10,000 per month for 15 yrs @ 15% per annum (which top equity schemes have delivered) will generate a corpus of around Rs 1 Crore and just extend that by 5 more years(20 yrs) the return will be a jaw dropping Rs 2.24 Crores.

Discipline of saving

SIP inculcates a pattern of forced savings and grooms the investor to save religiously for the long term. Just like every drop makes an ocean, every Rupee will make millions.

Benjamin Graham, wrote in The Intelligent Investor in 1949: “The investor’s chief problem – and even his worst enemy – is likely to be himself.” No financial advisor neither any fancy news report can deliver better returns than an investors own patience and discipline that will expose the magic of SIP. Gather the fish and the whale will follow.