Do you get horrified at the mere thought of market volatility? Then Systematic Investment Plan, popularly known as SIP could be the right investment product for you. Assuming that you already know what is a mutual fund, let’s understand what an SIP is.
What is SIP?
SIP is a way to invest in mutual funds. Under an SIP investment, an investor invests a specific amount of money at pre-determined intervals for a specific period of time in their preferred schemes. The investment amount can be as low as Rs 100 per month. The periodicity of the investment intervals can be daily, monthly, weekly, semi-annually, quarterly, or annually. Now that you have understood what an SIP is let’s look at the benefits of SIP investments.
Advantages of investing in SIP
Following are some of the benefits of investing in SIP:
- Disciplined investing
As SIP investments are automated in nature, they aid inculcating a sense of financial discipline among investors. Once an investor starts an SIP investment, a specified amount gets automatically transferred into their preferred mutual fund schemes.
- No need to time the market
Investors are often deliberating if it is an accurate time to invest in mutual funds or not. No can precisely predict the volatile market or if it has reached its low or peak point. Investing in mutual funds via SIP resolves this predicament as SIP is a periodic investment that happens across all market cycles. Hence, an investor does not have to time the market to invest in mutual funds via SIP mode.
- Power of Compounding
When you invest early, and for the long run, you reap the benefits of the power of compounding. An investor avails these benefits when they earn interest by reinvesting their interests earned on mutual fund investments. In short, your money works to generate more money on their own. The power of compounding is thus rightly termed as the eighth wonder of the world by some.
- Rupee Cost Averaging
Under the SIP mode of investment, investments are made towards the preferred mutual fund schemes irrespective of the market condition. This results in purchasing fewer units when the market is rising and more fund units when the market is low. This averages out the cost of the units bought. This principle is known as rupee cost averaging.
- Ease of investing
SIP makes it effortless to invest in mutual funds online. With SIPs, an investor can invest as low as Rs 100 per month. Investing in SIP is a hassle-free process as the amount gets automatically deducted at specific time intervals once your one-time mandate is approved.
- Lighter on the pocket
Unlike other modes of investments like the lumpsum mode, you do not have to go all-in and empty your pockets when investing in SIP. SIPs permit you to invest in mutual funds according to your financial condition, thus not causing financial stress among investors.
SIPs help to invest in a time-bound manner without worrying about market dynamics. Little drops of water make the mighty ocean”. The SIP mode of investment widely follows this concept. You can also use an SIP calculator to understand the future value of your investments. Happy investing!
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