When I was in Bangalore, I happened to observe with great disappointment many young freshers who joined IT companies for a huge salary starting their earning life on wrong foot. In the first month itself they, by and large, went for Mercedes or Audi cars. As a result, they ended up paying a great portion of their salary as EMI for next 10-15 years. I observed this overwhelming tendency among fresh recruits during the period 2007 – 2013. I don’t know what happened to them in 2020 when the Corona epidemic hit and most of the IT sector employees lost their jobs without any warning.

The type of Mutual Fund investment that involves a disciplined way of investing an amount at regular intervals- Daily/Weekly/Monthly/Yearly, is known as Systematic Investment Plan (SIP). Through SIP a salaried person can build a corpus fund for any personal goal by saving an amount every month from his salary. While joining an SIP, the investor is authorizing the Mutual Fund company to deduct a predetermined amount from his/her bank account at regular interval. Through SIP wealth creation has become possible for even low salaried groups since as low as ₹500 can be invested every month.

By introducing SIPs Mutual fund companies have done a great service to salaried persons and daily wages employees as it developed financial discipline in their lives. By committing a fixed investment amount every month people develop a habit of saving and investing consistently.

SIPs offer flexibility in terms of investment amount and intervals, and, as such, are adaptable to changing circumstances. Investors can start, pause or stop their investment and increase or decrease the amount as circumstances warrant.

The long term nature of SIPs aligns well with the goal of wealth creation. By investing a small amount regularly over an extended period, investors can reap the benefits out of the power of compounding. Compounding is the process where the earnings on an investment generate their own earnings leading to exponential growth over time. Longer the investment term, the greater the potential for wealth creation due to compounding.