Systematic Investment Plan and Unit Linked Insurance Plan: Effective Tools for Financial Growth

In today's era, merely earning money is not enough to be financially strong. Investing the earned money in the right place is equally important. In the context of Nepal, when we talk about investment, 'stock market' comes to the mind of many. However, upon hearing the name of the stock market, the fear of 'how risky is it?', 'will the money be lost?' scares many. Amidst this risk, an option has emerged that has opened the door for systematic investment. That is the Systematic Investment Plan (SIP).

SIP, or Systematic Investment Plan, is a modern way to invest in a mutual fund. It can also be called installment-based investment. Its best aspect is that you can invest according to your income and convenience. In SIP, investors can invest a fixed amount every month, quarterly, semi-annually, or annually according to their convenience. This money is invested by expert fund managers in shares and debentures of various companies after studying the market.

Another important option in the field of investment is the Unit Linked Insurance Plan (ULIP). In simple terms, it is a financial product that offers the benefits of both life insurance and investment in a single plan. In this, a part of the premium you pay is used for life insurance protection, while the remaining part is invested in the stock market or debentures.

Although the full concept of Unit Linked Insurance Plan (ULIP) has not been formally implemented in Nepal yet, the Risk-Based Capital and Solvency Margin Directive 2082 of the Insurance Authority of Nepal has created its legal basis. With the country's current political changes, it is expected that the state will soon bring this into mandatory implementation through insurance companies. In contrast, this scheme has been popular in India for a long time, and it is strictly regulated by the Insurance Regulatory and Development Authority of India (IRDAI).

To escape the burden of inflation, start regular investment through SIP from today; your small and systematic savings will be the strong foundation of a secure future.

From an economic perspective, the main objective of investment is to overcome rising inflation. Inflation means an increase in the prices of goods and services and a decrease in the purchasing power of money. The amount of goods that can be bought with one thousand rupees today will be less with the same amount of money after a few years. If the return on your investment is less than the inflation rate, the real value of your money is decreasing. SIP has the potential to provide high returns by overcoming inflation in the long run, as it takes advantage of the stock market's growth, which is generally higher than the inflation rate. Therefore, active investment is wiser than passive saving.

According to the universal principle of investment, risk and return are directly related. Although SIP based on shares carries higher risk, it has the potential to provide higher returns in the long run. Conversely, SIP based on debentures has low risk, resulting in comparatively lower returns. Therefore, investors should choose the right plan considering their needs and risk-bearing capacity.

If you don't know how to analyze the financial status of companies or don't have time to constantly monitor market fluctuations, entering the stock market directly can be risky. In SIP, your small amount is diversified and invested by experts, thus reducing the risk compared to individual investment. Here, you don't have to worry about which shares to buy and sell; the fund managers will do that work.

The most important thing for investors to understand is that past good returns do not guarantee the future. The estimated returns shown in the table may fluctuate according to market conditions. Investing solely based on current good returns and expecting the same in the future can be wrong. Therefore, before starting the investment journey, it is mandatory to consult with experienced experts who have studied this subject deeply, studied related fields, and gained experience. Only the advice of experts and your own study can show you the right direction.

Disciplined investment and patience are the main keys to financial freedom. Therefore, taking advice from experts at the right time and starting even a small investment from today will be a wise and safe step for the future.

Patience is the biggest asset in SIP. Suppose you continue your investment made monthly, quarterly, semi-annually, or annually according to your convenience for 15-20 years; due to the effect of compound interest, that small amount can take a huge form. This creates a strong financial foundation for major future expenses like children's higher education or retirement life.

Starting SIP in Nepal is very easy now. You can apply online from the website of the respective capital. The only thing is that when filling out the form, you must clearly choose how you will pay the money. A Demat and bank account are mandatory for this. Through e-Demat facility, you can arrange for automatic deduction of money from the bank at the specified time.

There is definitely risk in the stock market, but staying away from investment because of risk means only enduring the burden of rising inflation and reducing the value of your money. SIP and unit-linked insurance plans are effective tools in today's era to avoid rising inflation and protect the real value of your money. Instead of being tempted only by short-term return figures, one must seriously consider market fluctuations and the long-term effects of inflation.

Just as it is important to consult experts, experienced individuals, and knowledgeable people in this field before investing, it is equally important to choose the right timetable according to the nature of your own savings. Disciplined investment and patience are the main keys to financial freedom. Therefore, taking advice from experts at the right time and starting even a small investment from today will be a wise and safe step for the future.

(Parajuli is an Economics teacher at Janata Secondary School, Sahidnagar Danda.)