SIP investing 101: Building wealth through Systematic Investment Plans

Systematic Investment Plans constitute a very easy mode of investment – the other popular one being the lump sum investment mode – that also offers several other benefits to investors. According to the Association of Mutual Funds in India (AMFI), mutual fund SIP accounts stood at 7.92 crore as of February 2024. Furthermore, Indians invested more than ₹ 18,000 crore in SIP investments just in January 2024. This article offers investors tips to build wealth through this popular investment mode. 

Tips to build wealth consistently through SIP investments: 

  • Investors should leverage the early-mover advantage: It is advisable to start a SIP investment as early as one can. Individuals who start early can benefit from the power of compounding and earn higher returns in the long run. Investors must make the most of this early-mover advantage to accumulate considerable wealth through their SIP investments.  
  • They must automate their SIP investment to invest regularly: Investors should invest consistently for a long time to leverage the key benefits offered by SIPs such as Rupee-Cost Averaging or the power of compounding. SIP investments instill an investment discipline in the investor, thereby helping them make the most of these benefits. 
  • Investors should shortlist and select mutual funds that align with their investment objectives: While shortlisting potential SIP investments, investors should check if the mutual funds’ objectives align with their financial objectives. They must then compare the potential returns offered by these funds and select the one that offers them the most returns. 
  • They must diversify their portfolio to manage risk: Portfolio diversification is a foolproof way to reduce an investment portfolio’s overall risk. Investors should spread their investment amount across various categories of investment to manage their portfolio’s overall risk. This, too, can be effectively done through SIP investments
  • They should increase their investment amounts over time: Only investing regularly in the best mutual funds might not help investors reach their investment goals. They must also gradually increase their investment amounts to exponentially grow their returns. 
  • Investors should be mindful of their SIP investment’s tenure: SIP investments do not have a specific tenure, and the investor can decide when they wish to terminate their SIP investment. However, the investor must be mindful of how long they wish to hold on to their mutual fund investment. Investors should ideally hold a SIP investment for a long period to bear the fruits of the power of compounding. 
  • Using an SIP investment calculator can help investors develop foresight: SIP investment calculators are free, online tools that help investors calculate their mutual fund returns by entering details such as the investment amount and the investment horizon. Investors can also use SIP calculators to know the ideal investment amount and the investment tenure for their SIP investment, based on their investment objectives. 

SIP investments are beneficial to most investors since they help develop an investment discipline, are convenient modes of investment, and offer benefits such as Rupee-Cost Averaging and the power of compounding. Most mutual fund houses allow investors to begin their SIP investments with a monthly investment amount of ₹ 500. 

Interesting Related Article: “Identifying Best Mutual Funds for SIP Investments