Investing in 2024: Why you should continue to prefer SIP investment mode

2023 was a year of new leaps and achievements. Some of the new peaks and achievements have broken conventions and estimates. They prove once again that market forces respond and react in unique ways to events and developments. Contrary to less optimistic forecasts for 2022, the market achieved new peaks in 2023. The bull market in Indian stocks, especially small and mid-cap stocks in 2023, is so evident that many experts and analysts are paying attention to it.

However, a major development that has caught most of the street’s attention is the huge acceptance of the Systematic Investment Plan (SIP) investment mode. This is reflected in inflows through SIP mode which reached Rs 17,073 crore in November 2023 from Rs 13,306 crore in November 2022. This corresponds to a 28% year-on-year growth. Notable developments tell an interesting story.

Systematic investment plans (SIPs) of equity funds are mainly used by individual investors who want to invest regularly. Statistics clearly show the popularity of SIP. The monthly SIP contribution recorded in November 2023 was Rs 17,023 crore compared to Rs 11,005 crore two years ago. These funds were channeled through SIP accounts worth $7.44 billion as of November 2023, compared to $4.78 billion in November 2021. A significant portion of the money invested through SIPs goes into equity plans or hybrid plans, which have relatively more allocation to stocks.

Many investors prefer SIP investment mode as it is easy to understand and implement. Investors can allocate their money according to their capabilities. You can start a monthly SIP with a small amount like Rs 100 per month. The biggest advantage for investors is that it helps minimize the negative effects of volatility. For individual investors, it can be unsettling to invest all of your money in a stock fund at once and then watch the market falter. Instead, SIPs give you an advantage by helping you buy more when the chips are down. Corrections are inevitable in the stock market. Most investors cannot avoid this. This doesn’t mean you shouldn’t invest in stocks for fear of a correction. The biggest risk for investors in a bull market is not investing in stocks. Mutual funds offer a diversified portfolio of carefully selected stocks. And in this approach, SIP investment mode makes the stock investment journey not emotionally taxing.

Over the long term, SIPs can create wealth for investors as the stock market continues to reach new heights along with increased corporate earnings. Investors should consider this. Many people agree with the idea that SIP works. However, your contribution to SIP will not increase. As you get older, your financial goals change. For this, you need to modify the SIP amount. You should also increase the SIP amount every year and ensure that it accumulates with compound interest over the long term.

The formula for calculating the amount after compound interest🡺 A= P*(1+i)^n, — There are three main variables. This includes principal (or investment), interest rate (or rate of return), and holding period. Most individuals are aware of this wealth creation formula. However, they focus on maximizing returns, which is out of their control. Instead, if you focus your investments as much as possible and compound them over the long term, you are likely to build a large corpus. Both of these are under the control of the investor.

Historically, compound interest has been the single biggest factor in the process of sustainable wealth creation. So, as we head into 2024, don’t undermine the power of SIPs to create long-term wealth. If I had to pick just one powerful investment idea that helps investors become rich, I would choose SIPs. This is because you need to focus more on what you can control. By and large, markets reward investors who invest for the long term. And SIPs are one of the amazing tools that investors have at their disposal.