Why should you invest for a long time in SIP?


Most investors prefer a Systematic Investment Plan (SIP) to invest in equity funds. SIP has gained a lot of popularity in recent times. This is because people have become aware of its many common benefits.

Lowering the minimum investment limit, discipline in investment, the average cost of rupees, the strength of compounding are some of the major benefits of investing in SIP. Also, time is not required in the market to get more profit or reduce losses. The SIP collection in March 2021 was Rs 9,182 crore.

This shows an increase of 6.3 percent on an annual basis. This figure shows that more and more investors are turning to SIPs for investment. The longer the investors invest, the more they benefit. Investors investing in SIPs should also keep in mind the below-mentioned points.

Average holding period

If an investor invests for 20 years, the average holding period for each SIP will be 10 years. The reason for this is that only the payment of the first installment of your SIP has completed for 20 years. At the same time, your recent installment of SIP has not been completed even for a month. In this case, even if a person has been investing for 20 years, the average holding period would be only 10 years. In this case, the investor should take into account the average holding period. The holding period should not be calculated from the beginning of the investment. One advantage of investing through SIP is that you can take advantage of the power of compounding. To understand how beneficial the investment is in the long run, let us see how much return is given on the investment of 10 thousand rupees in different periods every month. However, investors continue to invest through S but the major cause for concern is that many investors close their investments prematurely. Many of those who stop withdrawing money before time, withdraw money before time. It is usually seen that people start investing with an investment target of 7-10 years, but stop it in the middle after three to four years. There may be several reasons why investors do not continue investing. Some reasons are discussed below:

Stock market fluctuations

Generally, investors are told that after 10–15 years, they can expect returns at the rate of about 12–15 percent per year. However, these returns are not uniform (this means that we cannot expect positive returns every year, whereas in fixed deposits we do.). The reason for this is the effect of market fluctuations in equity funds.

In this way, there are fluctuations in the profit of the investors due to the market being up or down. The returns from investments in equity funds are never the same. If we look at the return of Nifty 50 in the last 20 calendar years, it is found that the highest 78 percent (2009) return was given by an investor. At the same time, the minimum return of -51.8% (2008) was achieved. In the same way, if the market is up or down, then the effect on returns is also seen. It is not right for any investor to compare these returns with fixed income funds.

There is transparency in mutual funds about where an investor’s money is being invested. The NAV of the funds is available on a daily basis and the portfolio of funds is available on a monthly basis. This is very beneficial because investors know where their rupees are being invested.

On the other hand, many times this thing has to be lost because sometimes negative news about a particular company creates panic among the investors. Many times people are sold in panic. It is possible that these securities are held in other instruments of investment such as NPS and ULIPs, but information related to this is not publicly available. The convenience of easy redemption (redemption) in mutual funds also sometimes becomes a drawback. As investors can easily redeem their investments, they start looking for redemption options as soon as they see a little less than the expected return.

Disappointed with returns

Many investors are not satisfied with their returns and decide to stop investing in a systematic investment plan. Investors start evaluating returns received in that period within one to two years of starting. At this point, many investors feel that they have taken a wrong decision regarding investment.

However, he does not understand that the average holding period of two years is just one year. They start comparing the returns of their investments with other stocks or even Nifty or Sensex. It’s like making a comparison between apple and orange as a whole, but most don’t want to hear anything because the immediate experience isn’t perfect.

Some investors stick to mutual funds thinking that they will not get good returns from investing in these funds. At the same time, some investors decide not to continue investing in haste. If an investor decides not to continue investing in a short period of time, he is deprived of the benefits of later years. According to our internal research, 20 years ago (before July 1999) the average value of all funds in equity funds (growth options) starting at 10,000, each month was something like this: We can see in the table above that if any Investors you invest for 20 years, you get 12.2 times in the best case and 3 in the case of weakest returns Get 3 times.