Owing to the uncertainty associated with the spread of the deadly pandemic, volatility is expected to prevail for sometime. Systematic Investment Plans, commonly referred to as SIP stand out as winners in these situations. This article serves as an investment guide on how SIP investments can help you to prosper financially. Read on to know more.
What is SIP?
SIP is a mutual fund investment vehicle wherein an investor can invest a pre-defined amount in their desired mutual funds at periodic intervals for a specific period. SIP investments thus instill financial discipline among investors by regularly investing in mutual funds. An investor can invest as low as Rs 100 using SIP mode of investment. Note that, you do not invest in SIP per se, but invest in mutual funds via SIP route. Hence, SIP is not a financial vehicle in itself, but an investment tool to invest in different investment options.
How SIPs can work in your favor to prosper financially?
Individuals invest in mutual funds via the SIP route for several benefits it offers to investors. Let’s have a look at a few of the advantages offered by SIPs
- Rupee cost averaging
One of the biggest benefits of SIP mutual funds is rupee cost averaging. SIP investments ensure that investments in mutual funds are made irrespective to the market condition. This allow the scheme to attain more mutual fund units when the markets are low and vice versa. This averages out the total cost of the mutual fund scheme and also aids to reduce the total cost, with a rise in the instalments. As a result, an investor has the potential to earn higher returns thanks to SIP investments.
- Power of compounding
When you stay invested for a long period, say ten years or more, you profit from the power of compounding, also claimed as the eighth wonder of the world by several experts. Compounding ensures that your returns on mutual funds work on their own to make more returns. Hence, to be fully benefitted from the power of compounding, it is advised to invest in securities as soon as possible, preferably with your first pay cheque.
- Disciplined investing
To meet your financial goals effortlessly and without a hiccup, it is crucial to inculcate financial discipline. As SIPs are automatic in nature, they instill a sense of financial discipline among investors. With SIP investments, your investments in mutual funds is independent on your readiness or capability. What’s more, SIP investments further ensure that you do not exit the market during market corrections. Hence, a disciplined mode of investment such as one portrayed by SIP mutual funds helps to meet long-term financial goals.
- Pocket friendly
It is not always possible for individuals to gather the entire investment amount in one go, as needed in lumpsum investment. As SIPs permit investors to invest in mutual funds periodically, they are quite friendly on the pockets to investors. As an investor, you can invest as low as Rs 100 monthly in SIP mutual fund.