While many investors feel systematic investment plans (SIPs) are useful only because they help average out prices in a volatile stock market, Capitalmind Founder and CEO Deepak Shenoy said the primary reason in reality is that most people earn monthly, facilitating monthly investments.
SIP averaging out high and low prices in a volatile stock market is an outcome, not a goal, Shenoy said in a post on X, calling it something the industry decided is a “good thing”. “The main reason is: most of us earn money monthly. End of story. You earn, you spend, you save, you invest. That cycle happens monthly, and therefore you SIP monthly,” he added.
The Capitalmind CEO also listed a secondary reason. If one doesn’t invest, she will probably spend it. This is why SIPs make sense, according to Shenoy. You invest first and spend later, usually. So you end up spending only what's left with you, and that "forced" investing of sorts helps you build wealth for later, he explained.
How to build wealth faster?
“Many of us have the discipline to do an SIP manually every month - otherwise called "lumpsum" investing. This is also fine, and probably better because some months you will have way more money, and some you will be on kadki mode,” he further wrote in his post on X.
Disciplined investing initially works because the investor saves the money, not because it grows, Shenoy said, explaining that the growth happens in later years. So in the first few years, it is mostly the investor’s money, her savings that builds her wealth. It is in the later years that the incremental savings are very small compared to the corpus the investor has, so her portfolio grows more because of returns rather than because of what she is saving. “Save a little more every month or every year, and you'll build wealth faster,” the market analyst said.
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What should be an investor’s goal?
Deepak Shenoy however pointed out that building wealth is not the goal for an investor. "We, as mutual funds, help you build wealth, but your story has three parts,” he said. These three parts are saving and investing money, seeing the money grow because of returns and then spending the money.
The Capitalmind CEO highlighted that investors should not forget the third part, which is to spend the money. While wealth does not define the investor, her life does and she should make it better. “ SIP is a way to help you, but you have to do Part 3 all by yourself. And that, bro, is the best part of it all,” Shenoy further wrote in his post on X.
