WHY INVESTING VIA SIP WORKS BEST FOR SALARIED PEOPLE

If you are someone that works on a fixed salary, your money often goes out as fast as it comes in. In this situation, saving money becomes almost impossible. After paying your bills, you have little left to actually do something with it. However, the positive in this situation is that atleast you have some saving as opposed to nothing. Now the tough part is to decide what to do with your savings.

The idea of investing is that your saved money is no good if it simply sits in your account. Hence, you need to put that money where it can grow. This way, you earn more simply by putting your money in the right place. And when we say ‘right place’, it needs to be an investment avenue that has a higher chance of proving to be profitable.

For salaried individuals, the best thing you can do is to invest in SIPs. If you are not aware of this investment tool, here is a look into it:

What are SIPs?

Known as Systematic Investment Plan, SIPs are not an investment avenue but a route through which you can invest your money. Any money you invest through an SIP goes into mutual funds. Now the obvious question you may have is “If I am investing in mutual funds, what is special about doing it through SIPs”. For mutual funds, people often invest a lumpsum amount and simply wait for it to grow. However, as a salaried individual, you may not a large amount of money simply lying about. Hence, SIPs allow you to invest a fixed amount at regular intervals into a mutual fund scheme. These intervals can monthly, quarterly, semester-wise, or even annually.

Moreover, it is easier to invest through SIPs as well. You can invest as little as INR 500 monthly. Since, the investment is like a recurring deposit, you can tell your bank to deduct the investment amount each month so that you don’t end up spending it.

Why you should pick SIPs

SIPs have seen a rocketing rise in popularity among Indian investors. Even though, the option has been available for a long time, it has become a more common practice recently. SIPs allow you to trump market volatility and makes you immune from the timing of the market to some extent. For a salaried professional, using SIPs to invest in mutual funds is the best choice. Here are a few reasons:

Disciplined investing

Usually when you think of investing, the dominant notion is to save up money after all your regular expenses and then invest a lumpsum into an avenue. While investing in any way is a good thing to do, you need to discipline in investing to make sure you get returns. In the case of lumpsum investments, you never know when you will be able to invest next after you have done it once. SIP investments ensure that you have system for investing.

Regular investors and investment experts suggest that you should follow a formula of Earnings – savings = Expenses. This means as soon as you earn new money, you should take out a share of it to save and then use the rest for your regular investments. Otherwise depending on how much expense you have in a month; you may not be able to invest regularly.

Setting a discipline around how much of your earnings you want to spend in which avenue of life saves you from major financial troubles in the future.

Compounding

Many seasoned investors consider compounding to be the eighth wonder of the world. Meanwhile, most aspiring investors may not know what it is or how it works. Compounding works on the principle of calculating compound interest. However, in the case of investments, it is the returns that are calculated using this method.

In compounding, you not only get returns on the amount you invested, but also on your gains. This allows you to create more wealth in a limited amount of time. This is also the reason why many experts suggest using SIPs for a longer period. The longer you keep your invested, the more it multiplies. Moreover, unlike calculating compound interest, using compounding on returns does not follow a fixed percentage. This means based on the performance of your mutual funds you could get phenomenal returns. Happy investing!