Entrepreneurs always seek ways to maximize their returns and grow their businesses. One of entrepreneurs’ most popular investment options is Systematic Investment Plans (SIPs). SIPs are a hassle-free way of investing in mutual funds, allowing you to invest small amounts of money regularly. This article will explore why SIPs are the smart investment option for entrepreneurs.
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Understanding SIPs
A Systematic Investment Plan (SIP) is a method of investing that mutual funds offer. In this method of Mutual fund investing, you invest a fixed amount of money at regular intervals, usually monthly, for a specific period. The money invested is used to buy units of the mutual fund, and the number of units purchased depends on the current Net Asset Value (NAV) of the mutual fund. SIPs allow investors to invest in mutual funds without needing a lump sum investment. The investment amount can be as low as Rs. 100, making it an affordable investment option for entrepreneurs.
Benefits of investing in SIPs for entrepreneurs
There are several benefits of investing in SIPs for entrepreneurs. Firstly, SIPs offer the benefit of compounding. Compounding is the process of reinvesting the returns earned on your investment to generate more returns. SIPs allow you to invest small amounts regularly which, over time, can result in significant returns due to the power of compounding.
Secondly, SIPs offer a disciplined approach to investing. As an entrepreneur, you may have a lot on your plate, and it can be challenging to keep track of your investments. With SIPs, the investment amount is deducted automatically from your bank account every month, ensuring that you invest regularly.
Thirdly, SIPs offer the benefit of rupee cost averaging. This is a technique where you regularly invest a fixed amount of money in intervals, regardless of the market conditions. This ensures that you buy more units when the market is down and fewer units when the market is up, resulting in a lower average acquisition cost.
Lastly, SIPs offer the benefit of diversification. As an entrepreneur, you may have a significant portion of your wealth tied up in your business. Investing in SIPs allows you to diversify your investments and reduce the risk of having all your eggs in one basket.
The power of compounding in SIPs
The power of compounding is one of the most significant benefits of investing in SIPs. Compounding is reinvesting the returns earned on your investment to generate more returns. The longer you stay invested, the more significant the impact of compounding.
Let’s take an example to understand the power of compounding in SIPs. Suppose you invest Rs. 10,000 monthly in an SIP with an annual return of 12%. After ten years, your investment will grow to Rs. 24.55 lakhs. However, if you continue to invest for another 10 years, your investment will grow to Rs. 1.39 crores. This is the power of compounding.
Conclusion
SIPs are the smart investment option for entrepreneurs. They offer the benefit of compounding, a disciplined approach to investing, rupee cost averaging, and diversification. The power of compounding in SIPs can result in significant returns over the long term. When choosing an SIP investment, entrepreneurs should consider their investment goals and risk appetite, the fund manager’s track record, and the mutual fund’s expense ratio.