In the recent past, a major group of the Indian society—the rural and lower middle class—is entering into the Stock and Securities market as the minimum investment in Mutual Funds has come down to as low as Rs. 50. Till now, to invest through the SIP method, one had to invest Rs. 500 or 1,000 depending on the period.
SIP is an uncomplicated, time-honored mutual fund scheme designed to help investors to accumulate wealth in a systematic manner over a long period and to plan a more estimable future for them. It is a steamroller proffered by mutual funds, to help one to save on a steady basis. It is similar to a Recurring Deposit with the post office or a bank where one can put in a fixed amount at a regular interval. This disciplined approach of investing in SIPs includes the following technical benefits.
The power of compounding stresses the importance of starting investing at an early age. For example, A and B invest Rs. 100 every month at an interest earning of 8% p.a. on a monthly compounding basis. At the age of 25 and 35 years, both A and B start investing in SIP. Both of them invest for 5 years (Rs. 6,000) and hold their investments till 60 years of age. A's investment would have appreciated to approx. Rs. 74,430, whereas B's investment would have grown to approx. Rs. 34,475 only. Thus, B's investment would have almost doubled by just starting earlier than A. |
