WEGAIN – BENEF ITS OF SYSTEMATIC INVESTMENT PLANS
A SYSTEMATIC INVESTMENT PLAN (SIP) IS A PLAN IN WHICH INVESTORS MAKE REGULAR, EQUAL PAYMENTS INTO A FUND, TRADING ACCOUNT, OR RETIREMENT ACCOUNT SUCH AS A 401(K). SIPS ALLOW INVESTORS TO SAVE REGULARLY WITH A SMALLER AMOUNT OF MONEY WHILE BENEFITING FROM THE LONG-TERM ADVANTAGES OF DOLLAR-COST AVERAGING (DCA). BY USING A DCA STRATEGY, AN INVESTOR BUYS AN INVESTMENT USING PERIODIC EQUAL TRANSFERS OF FUNDS TO BUILD WEALTH OR A PORTFOLIO OVER TIME SLOWLY. POWER OF COMPOUNDING COMPOUNDING OCCURS WHEN THE RETURNS YOU EARN ON YOUR INVESTMENTS START EARNING RETURNS. THIS IS A SIMPLE CONCEPT IN THEORY. BUT ITS PRACTICAL IMPLICATIONS ARE SUBSTANTIAL. WHEN YOU INVEST REGULARLY THROUGH SIPS, YOUR RETURNS GET REINVESTED. OVER TIME, THIS RESULT IN A SNOWBALLEFFECT, THAT MAY INCREASE YOUR POTENTIAL RETURNS MANIFOLD. AN IDEAL WAY TO MAXIMISE THIS GAIN IS TO INVEST FOR AN EXTENDED PERIOD. THIS ALSO MEANS YOU MAY BENEFIT BY INVESTING AS EARLY AS POSSIBLE. DOLLAR COST AVERAGING IS A CONCEPT WHERE YOU PURCHASE MORE UNITS WHEN THE NET ASSET VALUE (NAV) OF THE FUND IS LOW, AND LESSER UNITS WHEN THE NAV IS HIGH. ESSENTIALLY, IT AVERAGES OUT YOUR PURCHASING COSTS OVER THE TENURE OF THE INVESTMENT PERIOD. YOU DON’T NEED TO WORRY ABOUT HOW TO TIME THE MARKET WHEN YOU INVEST THROUGH A SIP.
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