May 31, 2017 at 11:11 am

SIP: How Long Should I Invest in SIP?

What is SIP?

SIP which stands for Systematic Investment Plan, is a very potent financial planning tool. With SIP an investor makes investment of small amounts on a regular basis depending upon his short term or medium term or long term financial goals. These investments are mostly made on a weekly, monthly, quarterly or a yearly basis which are in turn invested in mutual funds, other assets or a mixture of assets. One may especially a traditional investor may equate SIP with fixed deposit (FD) or recurring deposit (RD) schemes but with a far better return on investment (ROI).

Advantages of SIP

The primary advantage of getting invested in SIP schemes are that they maximize returns from the market along with minimizing the risk involved. Also a potential SIP investor wouldn’t have to worry about timing his foray in to the markets with accuracy. With SIP as the investment is spread over time thus a potential investor doesn’t have to worry whether the market has peaked or whether he has missed out when the market had bottomed out. Due to the small periodic investments you won’t miss out on the next big market rally.

Types of SIPs

Different Systematic Investment Plans are tailor-made and designed to suit various needs and expectations of potential investors. SIP is a planned and totally calculated approach to invest in equity markets. SIPs also impart the required investment discipline which is a prerequisite when one first ventures in to the equity markets. One question that plays on a potential investor’s mind is for how much time I should stay invested in SIPs? Mostly SIPs have no fixed tenors and an investor can take out his investment anytime either in full or partially. This feature provides the required flexibility to one’s investment portfolio and a definite advantage over other long term investment options and plans such as insurance plans and more.

SIP benefits

SIP benefits include making the most of two most compelling factors in the investment market which are ‘Power of Saving’ along with ‘Power of Compounding’. It’s a given fact that the sooner one starts with SIP and the longer one stays invested the greater will be the returns and benefits. Many a time investment in SIPs by an investor is tied to a near or distant financial goal or a requirement of a certain amount of liquidity in the near or far-off future. In these cases the amount to be invested, the time period to be remain invested, the type of SIP plan to choose all can be selected accordingly.

How long to stay invested in SIPs?

Seasoned investors believe that the two factors which play an important role in maximizing returns and benefits from the equity market are ‘timing the market’ and ‘time in market’. Thus the longer you stay invested in SIPs the better will be your returns, as you will be making the invested money earn more money, so on and so forth over the years. One approach when deciding on the amount of time one plans to stay invested in SIPs is to list down one’s plans, goals, dreams and then work out the required amount of time one will be required to stay invested in SIP. To invest in SIPs read more from here.

Advantages of staying invested

With regards to investment time it is a given fact that the more the time one stays invested, the more will be the corpus accumulated and invested and thus more will be wealth accumulation and hence the returns. Also, as the amount invested increases so does the pace of growth at which the wealth builds due to compounding effect. Another major advantage of staying invested for a longer tenor is benefits from rupee cost averaging. With SIP as an investor invests small amount monthly thus he automatically ends up buying more units when the markets goes down and less when the market goes up, this phenomenon is called rupee cost averaging. So, contact your financial advisor today to know more about Systematic Investment Plans (SIP).