Benefits of SIP – nothing to do with the image above

Financial Independence, Uncategorized

I am a person whose attention span is very limited.  I end up getting attracted to the next bright object all the time.  It’s extremely easy to distract me.  Due to this, even in my office I have taken a room which is in the corner so that my distractions are limited.

Whether its books – my other hobby – the moment I am given a reference of a new book, I end up buying it from Amazon for my Kindle.  I have more than 30 books which I have bought and not even started reading and there would be another 30 which would be in semi-read state.  This does not account for the number of physical books that I have which are lying unread and semi-read, in my book-shelf.

Similarly its with investments.  I see a new theory or a new company or a new investment avenue and I start researching it on how I can benefit from it.

That’s where the benefit of investing via a Systematic Investment Plan (SIP) comes in.  It’s forced money which gets deducted from my bank account.  And since I don’t want to get a message saying that the SIP was not executed because of a lack of funds, I end up ensuring that there are always enough funds to cover my SIPs.

I originally started my SIPs with just Rs1000/- per month in 2013.  Thats about USD16/- that’s all.  Over a period of  time I have been increasing the amounts in various mutual fund schemes.

While I was investing in the equity mutual funds, I was also studying some of the good companies.  I read a whole lot of books on this – I have shared names of the books in an earlier post – and took every opportunity to watch videos on Youtube where legendary investors shared their knowledge.

Once I was able to analyse some of the good companies which had good management, I started SIPs for those individual stocks, again with very small amounts.  The “kick” of investing in individual stocks is

  1. I don’t have to pay a service charge to the mutual fund manager.  The 2.5-3% service charge that they take for managing our money can substantially reduce the overall wealth you can create.  I have shared complete tables of these calculations in earlier posts.
  2. When the company declares a dividend or gives bonus shares then the pleasure I get is immense.  This does not happen when you have mutual funds.

Having mentioned the two points above, I still have a lot of SIPs going into mutual funds, because I am not in a position to identify mid and small companies on my own because of paucity of time.  Having a fund house do that for me makes more sense even if they are charging me a percentage, which eats up into my returns.  Once I take my retirement, I intend to even do this on my own.

Another psychological advantage of SIPs is that your brain now works to live within the limits of the money which is leftover after accounting for the SIPs. This is a very important factor for people like me who end up choosing the next bright object.  This keeps me focused on ensuring that I take up any new adventure only after I have paid for my SIPs.

From a financial perspective SIPs ensure that you get the advantage to being able to buy more when the price goes down thus ensuring you take advantages of the draw down in the market.  On your own you would never be able to time the market so well.

I even started a few SIPs for my son so that he gets the advantage of age on his side.  Even to my friends, I force them to start these for their children at as young an age as possible so that they get the power of compounding on their side.

Whatever your age or whatever you earn, you can start investments into a SIP and make your money work while you sleep.

Especially women (and girls) – they have this big “mindblock” on not knowing finance.  With a SIP you don’t need to know anything about finance or stocks.  You just need to tell your financial advisor about the amount of risk you are comfortable and she will suggest a scheme for you.  You could also go to sites like valueresearchonline.com or moneycontrol where they showcase the risk ratings of funds.  You could just choose from any of those.

Till the next time.

Carpe Diem!!!

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