Start young: Financial independence for first time investors should begin with SIPs
Are you fresh out of college with a job in hand and dreams of going on those foreign vacations and driving your dream car?
Naturally, your first hard-earned first salary is splurged on parties and buying gadgets that you may want but not need.
Slowly and surely your credit card debt begins to mount and before you know it, its an endless loop of meeting bills and other sundry payments.
This is why you should apply just a bit of discipline and begin investing your money in small sums from day one.
And this is where a systematic investment plan or an SIP comes in the picture.
You can start an SIP with money as low as Rs 500 a month.
According to Bankbazaar.com, the returns generated by SIP mutual funds have been around 12% to 22% in the last 5 to 10 years.
With the power of compouding, this Rs 500 a month (Rs 6000 a year) will become Rs 40,000 in five years and Rs 1.2 lakh in a decade for an annual returns of 12%.
Isn't that cool?
However, for anyone, the most difficult part is to make investments a habit.
We tend to procrastinate, which leads to break our investment routine. So, if you are a first timer, SIPs will help you in maintain that routine.
A small amount every month is easier to invest than a big amount in one go. The investment happens automatically and you save and invest, instead of spending.
In a SIP, an investor has to deposit a small sum every month or every quarter and the amount of investment can be as low as Rs 500. If you choose a mutual fund scheme and invest in SIP, based on the plan that you have opted for they will allocate your money in debt or equity.
Speaking with Zeebiz, Archit Gupta, Founder & CEO ClearTax.com, said, "An SIP allows you to spread your investment over a period of time. You will be able to invest at different levels of the market. If the markets are high, you get fewer units. If the markets are low, you get more units for the same amount. This way, your overall cost of investment gets averaged out."
"SIPs are the best option for first-time investors because they insulate you from catching a market peak, they allow you to benefit from rupee cost averaging and they help you develop the habit of investing regularly," Gupta added.
Thus, start your SIPs today and save up enough for your future plans.