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I am in my twenties. Is SIP the most secure way of investing for me?

Your 20s are inarguably the best time of your life. A time when you have just finished your education and received your first pay cheque. A time when liabilities and responsibilities seem far away. A time when you can focus on enjoying the money that you earn. However, have you ever considered that your 20s are also the best time to start your savings and investment journey?

If you want to achieve your multiple financial goals and enjoy financial independence, then it is important for you to start your investment journey as soon as you start earning. From that perspective, investing in mutual funds via the Systematic Investment Plan (SIP) route can be ideal. Mutual funds are a convenient way to invest your money in a diversified way in stocks, bonds or a combination of both. They are professionally managed and can offer investors an ideal mix of risk and returns. You can choose to either invest a lumpsum amount or start a SIP. If you are in your twenties and just starting in your investment journey, you might not have a lot of money to invest. However, you should not let this stop you from starting your investment journey with mutual funds. You can choose to invest via the SIP route. A SIP allows you to invest a fixed amount of money in a mutual fund scheme of your choice. Further, you can also choose the frequency at which you want to invest, i.e., fortnightly, monthly, or quarterly. The best part is that you can start a SIP with as low as Rs. 500.

Thus, SIPs can be a secure way for you to start investing in your twenties for the following reasons:

  • You might not have enough money to invest and you can start a SIP with as low as Rs. 500
  • Once you commit to making a periodic investment, you become more disciplined about your savings and investments.
  • Starting early and staying invested for the long-term ensures that you benefit from the power of compounding. If you start investing in your 20s, the power of compounding will ensure that your money grows exponentially over a period of 15, 20 and 40 years. The below table shows how compounding helps to generate wealth over the long-term and even a delay of 10 years can have a significant impact on wealth generation potential.
ET Spotlight

Above example is only for illustration purpose

  • As you would be investing every month over a long duration, you would be reducing the average cost of acquisition over time. Since your investment amount would be the same every month, you would receive more units when the price is down and less units when the price is high. This will reduce the risk of investing.
  • With this strategy, there is no need to time the market, as you would be consistently investing in the market through all market cycles and at all market levels. Thus, timing the market would become a redundant exercise and you could instead focus on building your wealth.

Now, with such an easy and convenient way to start investing, you can embark on your wealth creation journey right away.

This answer should not be considered as ‘investment advice’. Kindly consult your financial/tax advisors to determine the financial implications with respect to investing in Mutual Funds. Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

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