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Is there an easy way to invest regularly with just a small amount of money?

Much like you tell children that constant practice and hard work will allow them to excel in their studies, continuous and consistent investments allow you to make a considerable profit. However, the chaos of daily life takes over and you tend to let things like investments fall through the cracks, putting it off for another day. For many of us, the end of the month brings with it the realization that there really isn’t anything left to invest.

Therefore the first step is to prioritize investing. Once you make that decision, you need to make it a part of your lifestyle. However, especially for beginners it is important that this be achieved without too much hassle. Wouldn’t it be ideal if investing were an automatic process?

SIP: hassle free investing

This is very much a possibility. You can make hassle free, regular investments through a Systematic Investment Plan (SIP). SIPs allow you to invest a pre-determined amount of funds on a monthly, or quarterly basis for a specified period of time. Once you sign up, you have to do absolutely nothing at all. The process is completely automated.

So how does that work? You basically give the mutual fund the permission to automatically debit your bank account for the amount that you had decided to invest. The money is then invested in one or more schemes that you had specified at the time of signing.

SIP: even for small amounts

One of the big advantages of investing through a SIP is that it works well regardless of how much money you have, or earn. The truth is that today, with your increasing needs and wants, along with the high cost of goods, it is hard enough to live within your means. Investing seems like it might clip your wings further. A SIP takes away this pressure because you can invest as small an amount as you wish to and it will still make a difference to your finances in the long run. You can begin a SIP with as little as just Rs. 1,000 per month, or Rs. 2,000 per quarter. Some mutual fund schemes allow you to start investing with an even lower amount.

SIP: allows for flexibility

An SIP allows some flexibility as well by giving you the option to choose the date of the month/quarter that the investment is made on your behalf. You are also able to increase your SIP amount if you are in a better financial position at a later time. You can decide to invest through an SIP in almost all open-ended mutual funds, and you are not restricted to invest in only one scheme, but can select several schemes at the same time. This also means that you can invest in a variety of asset classes like equity, debt and gold, which makes it possible to manage your asset allocation targets.

SIP: averaging out purchase costs

This brings us to the golden truth about SIPs — whatever the market situation, chances are you usually come out a winner.  This is because you are investing with smaller amounts at regular intervals instead of just one big chunk at a time. A one time investment needs good timing to ensure good returns. On the other hand with an SIP it does not matter when you enter the market because over time the cost of your investments usually average out — you will be able to buy more units when the market has fallen and less units if the market peaks. Over time you average out your purchasing cost. This is more popularly known as “Rupee Cost Averaging”.

SIP: don’t spend time timing the market, spend it in the market

The investing mantra to follow is — spend time in the markets, don’t spend time timing the markets.

Why is spending time in the market so important? The longer your funds are invested, the higher the likelihood that you might have a more significant return.

See the chart below.

In all 3 cases the total invested amount is the same. The main difference is the time that was spent in the market and the monthly invested amount.

Even with a small amount like Rs 2,000 one could possibly build a kitty of approximately Rs 6.4 lakh in 12 years.

Compare this to the end value of someone who invests three times as much on a monthly basis but does this for a much shorter period and the estimated end value is not nearly the same.

Investment Period

 Amount invested per month

Total Amount invested

Expected End Value

12 yrs

2,000

288,000

638,123

8 Yrs

3,000

288,000

479,782

4 Yrs

6,000

288,000

367,336

The above table is an example only for illustration purposes. It is purely to explain the effect of compounding on investments over a long term. The growth rate of the investment is assumed at 12%. Please note the growth rate mentioned above is purely for illustration purposes only & shall not be construed as indicative yields/returns of any of the schemes of Canara Robeco Mutual Fund.    

As you can see, the growth potential of starting early, even with a small amount, is tremendous. Also, investing through SIP facilitates disciplined and regular investing, even with small amounts of money. This is possibly the reason why it is very often the first step many people take when entering the world of investing.

The bottom line: Just as every drop in the ocean matters, small investments starting today can give you the power to live out your dreams tomorrow.

The essential thing is don’t waste another day thinking about it. Do it today!

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Mutual fund investments are subject to market risks, read all scheme related documents carefully.