Systematic Investment Plan: SIP

As the Year end approaches people start inquiring about the tax saving plans and want to invest their money now to save blogtax.  I have been approached by many of my friends and colleagues, they want to do everything now SIP, ELSS, Insurance?

Can you do financial planning in adhoc mode? For me it’s a big no. People end up buying either the most misssold ULIPS or may be some insurance plan.

The Term Financial planning is mis-directed, mis-guided and mis-selling lead to many such situations. I always encourage SIP between my fellow mates, whosoever asks me to invest the savings.

Systematic Investment Plan is an approach to investing within managed investments which involves investing a set of amount at regular intervals rather than investing a larger lump sum amount in one shot. By investing this way you are not attempting to capture the highs and lows of the market but rather the cost of your investment is averaged over a period of time. The essence of SIPs is that when the markets fall investors automatically acquire more units. Likewise they acquire lesser units when the market rises. This means that you buy less when the price is high whereas you buy more the price is low. Hence the average cost per unit drops down over a period of time.
I have suggested him to start an SIP for the following reasons learning from my prof:-

  1. Understand the Power of Compounding:It looks odd to realise that the power of compounding is NOT taught well at school! They give you some simple examples – rarely are you taught the POWER! Even people working in financial services do not appreciate the power of compounding. Ignore this only at YOUR OWN PERIL.
  2. Understand the Power of NOW: LEARN the power of starting to compound as soon as possible in life. If you have not understood, NO TIME LIKE TODAY. Pick up the pen, call the advisor, and click on the net – whatever…just start, NOW, TODAY.
  3. Understand the Power of Regularity – start a SIP AND make sure you do it regularly – not missing a single month. If by chance you do miss a month of investing, immediately pick up a cheque and send it in! At the end of a YEAR you should have invested 12* Amount being invested every month. If suddenly you have money, top up the SAME account.
  4. Understand the power of Not Touching the Money for ‘n’ years: Capital and Wealth creation needs long periods of growth. If you do not touch the money for any sundry purpose, leave it untouched. This helps in compounding. Remember this for life!
  5. Understand the power of LEARNING: If you are willing to wish to invest in equities – directly or through mutual funds, learn as much as possible about equities. Invest in learning, before you invest your money.

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