To promote financial discipline and take advantage of Rupee Cost Averaging, it is advisable to begin your SIP at the beginning of each month. Make sure your income is stable enough to comfortably commit to SIP contributions.
Mutual funds have become a popular investment vehicle for a wide variety of investors. SIPs or Systematic Investment Plans help investors enter the world of mutual funds with regular investments instead of a lump-sum deposit. While mutual fund SIPs have the potential for wealth creation in the long run, understanding when to start investing in SIPs is crucial as it can impact your overall return potential. Therefore, most investors struggle with the question of when to start investing in SIPs. The short answer to this question is the sooner, the better. This guide delves into why it's best to start investing in SIPs early and how to get started.
When should I start investing in SIP?
Start investing in SIP as early as possible to harness the long-term benefits of compound interest. The earlier you begin, the more time your investments have to grow. By starting your SIP at the start of the month, you can establish a disciplined financial routine and potentially benefit from Rupee Cost Averaging. It's essential to have a stable income source to ensure consistent contributions to your SIP.
Consistency is key to wealth creation. If you manually invest funds into an investment vehicle at regular intervals, you may forget to make a few contributions. Since SIPs are automated, there is no scope for lapses. Once you start investing in SIPs, you must create a standing instruction for monthly or quarterly debits, ensuring investment consistency. Since your contribution is auto-debited from the bank account at regular intervals, there is no need for manual intervention.
Often, investment consistency can be hampered by efforts to time the market to maximise gains. However, investing with SIPs helps overcome challenges associated with timing the market. SIPs work on the Rupee Cost Averaging strategy, where you keep investing consistently regardless of market ups and downs. This helps you purchase more mutual fund units when markets are down and prices are low, and fewer units when prices are high. Once you consistently start investing in SIPs, your investment can help you sail through short-term volatility to build long-term wealth.
Best time to invest in SIP
If you are wondering, “When should I start investing in SIPs?”, the answer is today. The power of compounding in mutual funds can help maximise your returns over time by earning returns not just on your principal investment but also on the accrued earnings. The logic behind benefiting from the compounding effect is simple: The earlier you begin, the more time your investments have to grow and compound. Even if you wish to start small with a nominal investment, your contributions will grow over time under the power of compounding.
The myth that SIPs are apt investment vehicles only for the young has long been busted. It is true that investors in their 20s and 30s can reap more benefits from SIP investments due to the sheer length of their investment horizons. So, if you are a 20-something with a new job or any other consistent source of income, starting SIPs early can help.
The longer compounding action on your investment can help maximise returns and grow your wealth over the coming years. You may miss out on potential returns even by delaying SIP investments by a few years. That said, investors in their 40s and 50s should not think that it's too late for them to start investing in SIPs. On the contrary, they can start investing in SIPs today and build a retirement corpus with disciplined savings. Investors can use a mutual fund calculator tool to estimate their returns and maturity amount and invest accordingly.
When you have a stable income?
As mentioned earlier, one of the key factors to decide when you should start investing in SIPs is income. Whether you are a salaried employee, professional, or entrepreneur, you need to have a stable and regular source of income to start investing in SIPs. A regular income is a prerequisite for SIP investments because it helps ensure you have enough funds to make regular contributions without straining your budget. Thus, it's crucial to evaluate your monthly income inflows and existing expenses and then compute surplus funds you can allocate towards SIP investments.
At the beginning of the month
It's not enough to understand when you should start investing in SIPs. It is also vital to know when to make your contribution within any given month. Most financial experts suggest contributing to your systematic investment plan at the beginning of the month when your salary or income gets credited. Here’s why this is prudent:
Discipline
Investing in SIPs at the beginning of a month cultivates financial discipline. Instead of spending first and then allocating a residual part of your income towards investment, you prioritise investment.
Avoid Delay
You should never put off investing in SIPs until the end of the month simply because you may not have adequate funds at the end of the month to invest in SIPs.
Rupee Cost Averaging
As mentioned earlier, Rupee Cost Averaging helps weather short-term volatility. Investing in SIPs at the beginning of the month allows you to benefit from price movements, buying more units when low prices prevail and fewer units when prices are higher, averaging out the cost of your investment.
On special occasions or on receiving a lump sum
You can also start investing in SIPs when you receive a large windfall or lump-sum amount. For instance, if you are a salaried employee, you can start SIPs when you receive your yearly bonus. Alternatively, if you receive money from an inheritance, you can use those funds or a part of them to start SIPs. Allocating windfall and lump-sum gains to SIPs can help you grow your wealth with returns over time. Similarly, instead of opting for regular gifts on special occasions like birthdays and anniversaries, you can start an SIP.
When you have clear financial goals
The question, “When should I start investing in SIPs?” is as crucial as, “What are my financial goals?” Before you start investing in SIPs, you must outline and determine your financial goals. Financial goals help motivate you to remain committed to your investment plan. Your financial goals can be anything from buying a dream home and foreign vacation to funding your child’s higher education and building a corpus for retirement. No matter what the goal, it offers a sense of purpose and direction to your investment strategy. Once your goals are determined, you can compare mutual fund schemes and tailor your SIP contributions to meet them.
Conclusion
So, if you are still wondering, “When should I start investing in SIPs?”, the short answer is today! The earlier you start the better the results. SIPs keep growing over time due to the compounding effect. So starting early gives you the advantage of time, helping you accumulate a larger corpus. Having a stable income, a disciplined and consistent approach, and clear set goals can help make your investment journey smooth and easy.
If you have not started investing in SIPs yet, you can do so on the Bajaj Finserv Mutual Fund Platform. On this smart and intuitive platform, you start monthly SIP investments with a nominal amount of Rs. 100. Here, you can tailor your portfolio with a variety of MF types, compare 1000+ mutual fund schemes, and estimate returns using free online calculators to build a wealth corpus, the smart way!
Essential tools for all mutual fund investors
Lumpsum Calculator | Systematic Investment Plan Calculator | Step Up SIP Calculator | Tata SIP Calculator |
SBI SIP Calculator | HDFC SIP Calculator | Nippon India SIP Calculator | ABSL SIP Calculator |