What is SIP?
A Systematic Investment Plan (SIP), as the name suggests, is a method of investment in a systematic manner, wherein you invest a fixed amount into mutual funds regularly. This can be done weekly, monthly, quarterly, etc. depending on your convenience.
The investment amount can be auto-debited from your bank account, as per standing instructions, and transferred to the mutual fund of your choice. If you are considering investing money for wealth building or for any future financial goal.
5 Reasons Why Should You Invest Via SIP?
Here are five reasons why you should consider a SIP.
Healthy Saving Habit
One of the prime reasons for investing in SIP plans is that it helps you invest regularly. It makes sense to save before you spend, instead of the other way round, and having a SIP in place helps to inculcate that habit early on. The investor can begin with as little as Rs. 500 without feeling burdened, and increase the routine investment as he grows more affluent.
Power of Compounding
Another big advantage of SIP investment is the power of compounding, which translates into higher returns the longer you remain invested. For example, even a modest monthly investment of Rs. 1,000 through a SIP, assuming returns of 15% p.a. over 20 years can grow into nearly Rs. 15 lakh as a result of compounding.
Accomplish Financial Goals
Most people save for financial goals like buying a house, children’s education, wedding, etc., which need a large capital outlay. SIP plans are designed to be goal oriented making it easier for you to plan, invest and save, and eventually achieve your target amount. And while SIPs are designed to be long term, there is no lock-in; you can redeem your SIP investment at any time.
Lower Investment Cost
SIP provides the benefit of Rupee-Cost Averaging. Irrespective of where the stock markets are, by investing regularly, you can average down your cost of investment. You get more units when the price is low and fewer when the price is high, which can mean a lower average cost per unit over a period of time. Since you are investing a fixed amount of money regularly, the guessing game is minimized and you don’t have to worry about timing the market. The result is an overall lower financial cost of your investment.
Also Read: 10 Best Mutual Funds in India 2019
Mutual fund SIPs offer you access to equity and debt, or both equity and debt markets. By investing in SIPs, you can easily access various types of asset classes and market capitalization with an investment of as modest as Rs. 500. When you invest in a mutual fund SIP, you are investing in multiple securities providing you the benefit of automatic diversification. This provides you with risk protection that is difficult and expensive to achieve if you invest on your own.
Mutual fund investments are not only ideal for investors who are just starting out, but work well even for expert investors. They are relatively low cost, goal oriented and diversified, but their greatest advantage remains their ability to drive investors towards their financial goals in a disciplined manner.