SIPs – a Habit to Inculcate

(This column was first published on Value Research Online.)

Humans are creatures of habit. I’m no psychologist, but I can safely make the assumption that we derive comfort from our routines because we get habituated to them. More often than not, a habit allows us to predict and anticipate exactly what will happen, without throwing up any surprises. To cut a long story short, we like our habits because they make our life easier.

These are our conscious habits, like making a to-do list for the day every morning or going for a run or focusing on only one task at a time. Multi-tasking is not a good habit to have, by the way, but that’s another story. This story is about habits – conscious and subconscious. As far as subconscious ones are concerned, I think the most common one is honking at traffic signals. Sitting behind the wheel somehow wires our brains into thinking that everyone else is going to park their car in the middle of the road and set up a picnic right then and there. Of course, that’s never going to happen, but we can’t help but honk incessantly whether we’re genuinely in a hurry or not. And we do it out of habit, like many other things.

The other subconscious habit that’s common to most of us is the formation of a queue. When we’re supposed to stand in a queue, we somehow collectively end up making it like a ‘Q’. But that apart, the one conscious habit that everyone needs to get into is the habit of SIPs. Saving something every month and investing in systematically in equity funds is a habit that most of us should inculcate. It’s not that hard and the long-term benefits are fabulous.

It has been dwelt upon umpteen times that the best way to invest in equity funds is through SIPs. Systematic investments average out the cost of your unit purchases, they don’t put you at the risk of catching a market peak and they earn you the benefit of compounding. And probably the most important benefit, from a non-technical perspective, is that SIPs force you to save and invest that definite amount periodically.

Money saved is money earned, we know that. And in the case of SIPs, money invested is money that works to earn more money for you. Now, isn’t that a habit you could get used to?

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