Why Sips Work: A Behavioural Perspective on Disciplined Investing

One of the biggest challenges with investing is staying calm and steady when the market moves up or down. This is where Systematic Investment Plans (SIPs) can make a big difference. They help you build a disciplined approach towards potential wealth creation.

Let’s understand how SIPs work and how they can help shape investing behaviour.

• Table of contents

• How SIPs help you avoid emotional investing
• The habit-forming power of SIPs
• Why SIPs are suitable for a long-term approach

How SIPs help you avoid emotional investing

You may believe that most people lose money in the market because they picked the wrong fund or stock. But the real reason is often that they bought or sold it at the wrong time! Emotions often take over during extreme market movements, but SIPs can help keep them in check.

• They remove the need for timing the market: With SIPs, you invest a fixed amount regularly, no matter what the market is doing. This helps you avoid panic during a market fall or overconfidence during a market high. Over time, you buy more units when prices are low and fewer when prices are high. This is called rupee cost averaging, which is a key benefit of SIP investments.
• They stop you from making sudden decisions: Because SIPs are automated, you’re less likely to act out of fear or greed. You simply keep investing, without second-guessing every market movement.
• They build a routine: SIPs become part of your monthly habit, just like paying a bill. This makes investing feel normal, not stressful.

When it comes to SIP vs. lump sum, SIPs usually suit regular investors, especially during uncertain or volatile times. They help you stay invested without having to think too much or make decisions based on market noise.

Read Also: How to Use Systematic Investment Plans (SIPs) to Achieve Financial Independence

The habit-forming power of SIPs

Good investing is all about discipline. It means staying regular and avoiding emotional traps. SIPs help you build these qualities almost effortlessly.

• SIPs encourage small, steady steps: You don’t need a large amount to start. A small sum, like Rs. 500 a month, can be enough. This lowers the barrier to investment and helps you begin your journey with confidence.
• They make saving automatic: Once your SIP is set up, the money is automatically invested from your bank account at your chosen regular intervals. This builds consistency.
• They train your brain to think long-term: When you see your investments potentially growing slowly over time, you start to understand how patience can work in your favour. This mindset shift tends to be powerful.

SIPs help you develop a solid financial habit, just like exercising or eating healthy, which can help build real potential results over time.

Why SIPs are suitable for a long-term approach

Many people wonder what the best way to invest in mutual funds is. While there’s no single answer for everyone, for most people thinking long-term, SIPs can be a suitable choice.

• They match your income cycle: Most people earn monthly, and SIPs allow you to invest in the same cycle. This makes it easy to plan and manage your money.
• They potentially benefit from compounding: As you keep investing, your returns also start earning potential returns. This snowball effect is called compounding. The longer you stay invested, the more you can potentially gain from it.
• They smooth out market ups and downs: No one can predict the perfect time to invest. However, by spreading your investment across many months and years, SIPs reduce the risk of investing at the ‘wrong’ time.
• They fit into a long-term investment strategy: SIPs are suitable when used with a clear goal, like saving for a house or retirement. With time on your side, even small monthly amounts can potentially grow into a large corpus.

Read Also: Regular SIPs vs Buying on Dips - Which Is Better

Conclusion

SIPs work because they help you stay calm, consistent, and committed. They protect you from the common emotional traps of investing and slowly help build potential wealth through steady habits. Whether you’re just starting out or looking to follow a long-term investment strategy, SIP is a suitable way to invest in mutual funds.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

This document should not be treated as endorsement of the views/opinions or as investment advice. This document should not be construed as a research report or a recommendation to buy or sell any security. This document is for information purpose only and should not be construed as a promise on minimum returns or safeguard of capital. This document alone is not sufficient and should not be used for the development or implementation of an investment strategy. The recipient should note and understand that the information provided above may not contain all the material aspects relevant for making an investment decision. Investors are advised to consult their own investment advisor before making any investment decision in light of their risk appetite, investment goals and horizon. This information is subject to change without any prior notice.

The content herein has been prepared on the basis of publicly available information believed to be reliable. However, Bajaj Finserv Asset Management Ltd. does not guarantee the accuracy of such information, assure its completeness or warrant such information will not be changed. The tax information (if any) in this article is based on current laws and is subject to change. Please consult a tax professional or refer to the latest regulations for up-to-date information.