SIP… the power of compounding!!!!!!!
The key to build wealth is to start investing early and to keep investing regularly. These regular amounts of savings no matter however small they may be shall go a long way in creating a substantial amount of wealth over a long-term and help in achieving your ultimate goal of accumulating wealth.
SIP is a fine way to invest in mutual fund. The easiest way to make money in stock market is buying when market is low and sell high, but since it is not possible to time market always, SIP is an easy way to do it. Though it does not promise best return, it has been considered as one of the best way to wealth accumulation. The probability of making a loss in long run is negligible.
As already discussed investment in SIP is over a period of time and in small amounts as compared to huge one time investment. Here you accumulate units on a regular frequency at NAV, when markets are down you would accrue more units, when it is up you would accrue less units, but would average out over a period of time. This technique helps one to accumulate more units; average unit cost is less when compared to average unit price.
Here is an example of rupee cost averaging and comparison with a one time investment
| Date of investment | Amount | NAV | Units allocated | Average price |
| 1-Jan | 1000 | 10 | 100 | 10 |
| 1-Feb | 1000 | 9 | 111.111 | 9.473 |
| 1-Mar | 1000 | 8 | 125 | 8.925 |
| 1-Apr | 1000 | 9 | 111.111 | 8.944 |
| 1-May | 1000 | 11 | 90.90 | 9.291 |
| 1-Jun | 1000 | 13 | 76.92 | 9.755 |
| Units Accumulated | 615.054 | |||
One time investment of Rs 6000/- at the NAV Rs 10 will buy you 600 units, where as in an SIP one will accumulate 615 units over a period of time. See the advantage…….
This is similar to your recurring deposit with a bank; the only difference is that the amount is invested in mutual fund. And all this is done by just filling up an application form and giving posted cheques or signing ECS.
