When Should I Start Investing in SIP?

The best time to start investing in a SIP is as early as possible. Starting early allows your investment to grow significantly over time, maximising wealth accumulation. The earlier you begin, the longer your investments have to grow.
Start Investing in SIP
3 min
24-September-2024

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

Frequently asked questions

What is the best time to start a SIP?
The best time to start investing in SIPs is now. Irrespective of your age, starting SIPs as soon as possible allows you to stay invested for a longer time and reap the benefits of compounding and Rupee Cost Averaging.

What is the right age to invest in SIP?
When it comes to SIP investments, there is no ‘right age’. If you are 18 years or older, there’s no better time to start SIP investments than the present. The earlier you start, the better returns you can potentially make.

Should I start SIP when the market is down?

Investors with a long-term investment horizon should strategically increase their Systematic Investment Plan (SIP) contributions during market downturns. This approach, known as rupee-cost averaging, can substantially boost long-term returns. Market corrections offer a unique opportunity to acquire more units at a lower price, leading to potentially higher overall returns when the market recovers.

Is SIP good for beginners?
Yes. SIPs are ideal for beginners since they have the right mix of risk and return. They offer a systematic and disciplined approach to mutual fund investments for beginners. Additionally, SIPs have limited exposure to the fluctuations of the stock market and offer relatively stable returns in the long run.

Which time is best to start investing in SIP?
The best time to start investing in SIPs is when you have a stable source of income and clearly outlined goals. In other words, any time you can consistently invest in MFs via SIPs is the right time to start an SIP.

How much SIP should I start with?
Your SIP investment amount will depend on various factors like your age, goal, time horizon, and budget. A good rule of thumb is to subtract your current age from 100 and convert the result into a percentage. Ideally, you would need to invest this amount from your monthly savings.

Which SIP is good to start with?
When it comes to choosing MFs for your SIP investments, you need to consider various factors like your risk appetite, time horizon, and, of course, investment goal. Doing so will help you choose from large-, mid-, small-, and flexi-cap, along with balanced, equity, and debt funds.

Can SIP go in loss?
The loss or gains in an SIP depends entirely on the performance of the underlying mutual fund scheme. If the NAV (Net Asset Value) of the MF units fall, the SIP will also account for a loss.

Why don't people invest in SIP?
Investors are often sceptical about the return potential of SIPs in the long run. They consider debt instruments as a better alternative for stable long-term returns.

Is SIP better than FD?
SIPs offer the potential for higher returns in the long run, while FDs are great for no-risk assured returns. SIPs are therefore preferred by investors seeking higher returns against higher risks, while risk-averse investors prefer the safety net of FD. At the end of the day, the choice between the two depends on the investor’s goals, risk appetite, and time horizon.

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Disclaimer

Bajaj Finance Limited (“BFL”) is an NBFC offering loans, deposits and third-party wealth management products.

The information contained in this article is for general informational purposes only and does not constitute any financial advice. The content herein has been prepared by BFL on the basis of publicly available information, internal sources and other third-party sources believed to be reliable. However, BFL cannot guarantee the accuracy of such information, assure its completeness, or warrant such information will not be changed. 

This information should not be relied upon as the sole basis for any investment decisions. Hence, User is advised to independently exercise diligence by verifying complete information, including by consulting independent financial experts, if any, and the investor shall be the sole owner of the decision taken, if any, about suitability of the same.