SIPs are probably the most effective tool in the hands of small investors to fulfil their financial dreams. They are affordable, easy to implement and take away the pain of making investment decisions again and again. But despite all these obvious benefits, the number of SIP holders is not very high. I estimate that not even 1% of India’s population is investing in SIPs. Even, those who do, the SIP amount for most of them is very small. Furthermore, even these investors don’t continue their SIPs long enough to realise the full benefit of the compounding power. Astonishingly, out of total SIP investors only 11% people continue their SIPs beyond 5 years. Which means remaining 89% would not able to generate good wealth through SIPs.
Why people don’t take the full benefit of SIPs despite having the potential to do so. After all, SIP is the proven wealth creator around the world even for people who have started very small but continued it for long period of time.
The reason is that the benefit of SIP accrues after a long time. Many people get impatient as they keep on investing without seeing the benefits for considerable time. On top of that, the market’s imminent downfall makes them wary of the SIP benefit. They suspect that what they have been told is an exaggerated story and the reality is different.
Here, I think investors not only need proper hand holding but they also must see some immediate benefits which would keep their motivation high. Here are some immediate benefits of SIPs which will help you stick with the game of compounding as your small savings turn into magical wealth-
1) Take the SIPs not just for long term goals but for some short term relishes as well- For example, along with long term goals say retirement planning or children higher education planning, take the SIP for short term goals say vacation planning also. Your short term goal will keep you excited because we generally prefer low hanging fruits more than the longshots. But you must make a contract with yourself that vacation planning will get along with long term goals but on a standalone basis.
2) Set the SIP day in your calendar as wealth creation day-Set a day of the month preferably the first of the month as the SIP or investment day. You can even plan some innovative celebration on this day. Even rituals like Pooja etc work wonders to strengthen our commitments besides getting the blessings of the almighty.
3) Choose the right advisor who would keep motivating you- It’s very difficult to find an investor who has made big without associating with any investment service provider. Long term investments need continuous service, advice and reinforcement. You need a buddy whom you can freely discuss your goals, fears and progress towards your goals. Finding and continuing with an ethical advisor is probably the first step towards financial freedom.
4) Investment is not a taboo, discuss with your friends- What’s wrong in discussing your investments and financial goals with people you trust like your spouse, relatives and friends? Money matters are common issues for nearly all the people so discussing investment would be quite interesting as well.
5) Choose the investment system which is easy to operate- The best way to develop good habits is to make them easy to operate. Similarly, to avoid bad habits, make them difficult to continue. Making investment is a good habit and breaking long term investment is a bad habit. So make a contract with your advisor so that making investments should be very easy to implement. For example, you simply send a message to your advisor and he/she completes the investments immediately. Whereas any redemption should need proper explanation. The convenience of making investments and little inconvenience of withdrawal makes your investment disciplined and let the compounding work uninterruptedly.
Manoj Pandey
CFP
