‘SIP’ up for long-term financial health
When the going gets tough in the markets, it is difficult for the investors to keep faith in the investments that they have made as they witness the value of their investments being eroded.business Updated: Jul 31, 2008 20:38 IST
When the going gets tough in the markets, it is difficult for the investors to keep faith in the investments that they have made as they witness the value of their investments being eroded.
One way to tackle such a situation is to ensure that the investor has bought into a long-term systematic investment plan (SIP).
Different people have their own definition of long term, but on an average one can invest a fixed amount in the Indian market over a period of 7-10 years to expect good returns on investment.
This time period has historically also been one of the most profitable for investors and it also makes sense because it is likely that during this time there will be both good times as well as bad, which will even out the investment in the end.
It also allows the investor to build a good corpus because a regular investment will ensure that even smaller amounts keep getting added up to larger figures that show some significant returns for investors.
One of the most common features of investing through SIP is that in the short term, there is likely to be pain for the investor especially when the investment is started during tough times or when there is a period of a sharp fall in the market.
This is when the investor has to remain committed to the investment with the longer-term success in mind. This is the reason why a longer term SIP is considered to be more useful for the investor.
Forming the habit
Investing in SIP results in a case of forced savings, which is beneficial for the investor. In a few months’ time they get used to the fact that there is only a certain amount coming into their hands after the deduction for the investment so the amount going towards the investment does not feel like an additional burden. Investors need to realise that in the process a corpus is being built up for the investor without much trouble.