For most of the us the very first investing lesson started from the familiar place we call “ghar”. Remember those days when relatives and family friends gave children some money for “buying treats” on special occasions and visits. For children of that generation, getting those small amounts was thrilling, but it also meant that some or all of it had to be stashed away in a piggy bank. Waiting for the piggy bank to fill up so that we could buy something special with the large amount was an equally wonderful feeling.
In the process, children learnt about saving for a financial goal, and the value of money. While one Rs 10 note could buy a chocolate bar, several such Rs 10 notes could eventually help buy a cricket set or a doll’s house. Little investments helped achieve bigger goals.
For many, this was also an introduction to the concept of systematic investment plans (SIPs). These instruments have benefits such as inculcating a savings habit and sorting out the finances of individuals as well as families. Let’s understand how all this can be achieved through SIPs.
Savings Habit
This habit of piggy-bank savings taught more than just the importance of saving money—it taught the importance of having financial discipline and setting and prioritizing goals. It also taught us the difference between going for temporary happiness and one which could last a longer time. For example, a bar of chocolate would be consumed in one go, but a cricket set or a doll’s house would mean gratification multiple times.
It is this simple lesson that makes for the concept of SIPs. It enables an individual to save up a certain amount regularly for a pre-planned goal, bringing a larger sense of fulfilment and achievement.
SIPs not only inculcate a savings habit, but unlike piggy banks, which only store your money, SIPs also make your money grow. SIPs invest your money in equity and debt markets and help you earn returns on your savings.
Today’s tech-savvy children are more advanced in their understanding of money and investing. Guiding them from a young age on how to invest using SIPs will help inculcate better money values and teach them the power of goal setting.
One Goal, One SIP
In every family, each member has different needs and dreams, and may have individual goals. The parents may want a bigger car or may be looking to start a business, while the elderly in the family may be looking forward to going on a longish vacation with their peers, friends or family. On the other hand, smaller children may want to spend on a new toy or gadget, and the elder ones may be looking to save up for specialized courses.
Each goal may be important to that individual. Some of these goals may have a longer time frame, some need higher investment, while others may be short-term in nature or could be funded with a small amount of money.
In this scenario, can a single SIP satisfy all the requirements? The answer is no. An effective way to distribute your investment is to have one SIP for each of the goals. Depending on the time period and the amount required, every family member can start a separate SIP. For instance, the person who wants to start a business can start an equity SIP for the long-term goal. Similarly, the elderly can also independently fund their needs without the limitation or inhibition of asking their children for monetary support.
Children have the greatest advantage on their side—that of time. If they start investing early, they can save up enough for their future goals. A monthly SIP of just Rs 100 in an equity fund can snowball into a large sum in 10-12 years. Smaller SIPs can help realize specific goals such as buying a new laptop or a cycle, without borrowing money from elders. This could inculcate a sense of responsibility and financial independence in them and lead them towards a debt-free life.
More than realizing goals, SIP gives every member of the family financial independence.
Family Goal, Family SIP
While individual goals are important, every family also has some common goals. Sometimes dreams such as buying a new house or planning a big family vacation can take a backseat. You can safeguard family goals with one common family SIP. But ensure that the saving meant for these goals are not used up for individual goals by having separate SIPs for those, as was mentioned earlier.
Every earning member can contribute equally to this common “Family SIP” to ensure everyone’s efforts go into achieving a single goal that can be shared by all. A common family SIP could also discourage the reallocation of funds elsewhere.
Such steps sometimes also go a long way in determining strong bonds among various family members.
Make It A Way of Life
Contrary to popular belief, investing is not only for those who earn big bucks. With a tool like SIP, even the smallest contribution, if done regularly, can make a big difference. Such financial discipline aids in realizing not just short-term aspirations but also long-term goals such as retirement planning.
Make SIPs a part of your and your family’s lives. Introducing your family to the power of SIP can help transform many dreams into reality. From a person-specific “Har Ek SIP”, it’s time to get to the next stage of “Har Ghar SIP” for a family that SIPs together, and stays happily together!
K S Rao Head - Investor Education & Distribution Development, Aditya Birla Sun Life Asset Management Company Ltd
Disclaimer
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.