How to amass wealth through SIP?

I will start this blog article with the assumption that you are likely aware of the term ‘Systematic Investment Plan’ (SIP). Just to give a refresher for newbies, SIP is nothing but an investment strategy that allows you to invest a fixed small amount of money in mutual funds every month periodically, instead of lump-sum investments.

The mutual fund industry’s perspective has recently transformed, and you may profit from SIPs in addition to the core aspects of investing.

We, as investors have switched the tagline from ‘Mutual funds are subjected to market risks’ to ‘SIP Sahi Hai!” SIPs are the investment instrument to which everybody is flocking.

This is supported by statistics. As per the data from Association of Mutual Funds in India (AMFI), the number of SIP accounts has increased from 3.31 crore in August 2020 to a whopping 6.97 crore by August 2023. In the same time span, the amount of money invested in SIPs has nearly doubled, rising from Rs. 7,792 crore to Rs. 15,814 crore.

Year	Yearly SIP Contributions (Rs. Crore)
Aug-2016	3,497
Aug-2017	5,206
Aug-2018	7,658
Aug-2019	8,231
Aug-2020	7,792
Aug-2021	9,923
Aug-2022	12,693
Aug-2023	15,814

This, however, is not simply another craze. It’s a full-fledged shift in perspective that reflects Indians’ expanding financial knowledge and rising investment-savvy thinking.

Why is SIP so widespread?

• Instils discipline – Consistency and discipline are the key to achievement in every element of life, including in investments. SIPs can also assist you with this. They enable you to invest on a regular basis. You may customise your SIP date based on your pay-check cycle so that you can get into the routine of ‘save first, spend later’ concept. It is advantageous for those who require assistance in saving and investing the money.

• Automates investing – Your investment goes into a state of automatic mode after you set up a SIP. Each month, a fixed amount is withdrawn from your bank account and invested in the fund of your choice. It is really convenient and enables investing to be free of anxiety.
• Affordability – To begin a SIP, you just need Rs. 500 every month (or Rs. 100 in some mutual funds). Investing with such a modest sum, however, does not exclude you from reaping the benefits of diversification. SIPs are thus not exclusively for the wealthy.
• Reduces the risk of investing at highs of market – SIPs are intelligent. By their definition, they purchase fewer units during high prices and more units during low prices. It finally averages out the investment costs and removes the risk of investing during a bull market. This advantage of SIP is also known as ‘rupee-cost averaging’.

The fairy-tale of step-up SIPs:

Growing your SIP investments in accordance with your salary growth can miraculously increase your wealth. If you invest in SIP of Rs. 500 per month, at assume that if it gives 12% per annum returns, stepping up that SIP contributions by 10% every year will increase the corpus or wealth amassed phenomenally, if the time span of investment is more.

Assume someone has established a monthly SIP of Rs. 500. They might have accumulated roughly Rs. 59.41 lakh with a 12% yearly return over a 40-year period. However, if they had raised their monthly SIP payment by 10% each year and obtained the same yearly return of 12%, their investment would be worth a whopping Rs. 1.65 crore after 40 years, which is almost triple the amount received if SIP amount not increased.

Step-up SIPs, on the other hand, are not a passing obsession. They need determination and the ability to resist the impulse to indulge as your income continues to improve.

DO’S AND DON’TS OF SIP INVESTING:

Now that you are aware of the basics of SIPs, you also need to be aware of their dos and don’ts. Here’s a concise and useful summary:

The Don’ts – Avoid these mistakes:

• Terminating your SIP at market extremes: SIPs are intended to instil financial self-control. The primary goal of SIP investing is to profit from market swings. By raising your SIP amount, you could buy more units at reduced prices and fewer units at higher prices, thus normalising or averaging your purchases. Furthermore, because your investment sum is fixed, you keep your sights on a market high. Stopping SIPs during a market downturn undermines and fails this goal. Your investment will be inconsistent, which will have a detrimental impact on your entire corpus.
• Investing without a goal: When there is a defined financial objective, it can assist to determine what amount to invest, for how long to invest, and in which fund to invest. It also helps you stay on target and allows you to select the appropriate sort of fund and to make important decisions such as asset allocation.
• Changing funds frequently: SIPs prosper on perseverance. Rather than hunting funds based on their short-term results, it’s better to do your homework, pick a few funds, and persist with those. Furthermore, frequent changeovers might cause tax issues and exit loads, delaying your targets.
• Overcooking your SIPs: Simplicity is a companion in the realm of SIPs. While different types of SIPs like value-averaging SIPs, flexi-SIPs, trigger-SIPs, and ad-hoc SIPs may sound enticing, they frequently deviate from the traditional SIP strategy. Trigger SIPs, for example, react to market circumstances, which defeats the primary objective of a SIP.

Do’s – Follow these practises:

• Endurance is the key: A new born baby will not turn into a well-built man or woman overnight. In a similar fashion, don’t get too caught up on your SIP results, particularly during the first year. Patiently grow your capital. Keeping psychological distance enables logical decision-making free of hasty emotions.

• Stay calm and composed: The market is an emotional roller coaster. It has volatility, but in the long run, it finally hits new highs and always reaches an acceptable level. Emotional reactions to the market might result in rash decisions that undermine your future chances. Maintain your cool and believe in the process.
• Play Long: Keep in mind that SIPs are a long race, not a sprint. With a 3- to 5-year time frame, your investment capital will expand dramatically, much like seeing a city skyline landscape develop one structure at a time. This advancement may motivate you to save and invest more. It has the ability to raise your SIP allocation and expedite your financial achievement.
• Perform your own Due Diligence before any investment: While it is critical to begin and increase your SIP as soon as feasible, it is also critical to understand the category and fund in which you are investing. Different mutual funds react in different ways. Furthermore, each fund has a unique set of targets. Proper research might be time-consuming, but it is essential. So make sure you do that before you begin your SIP or, per say any investment that you do.