“Little drops of water make the mighty ocean”. This concept is followed by a popular mode of investments – Systematic Investment Plan, or commonly known as SIP.SIP is a mere tool to invest in mutual funds. Under SIP investment, an individual invests a fixed amount at periodic intervals in their desired schemes. SIPs help to accumulate wealth by regularly investing money for a long period.
This article will focus on the advantages offered by SIP investments. These are:
- Disciplined investing
Since SIP investments are automated in nature, they help to instil a sense of financial discipline among investors. Once you have started an SIP investment, a fixed amount gets automatically transferred into your preferred mutual fund schemes.
- No need to time the market
Investors are always in the dilemma if it’s the right time to invest in mutual funds or not. No can accurately predict the volatile market or if it has reached its peak or low point. Investing via SIP resolves this quandary as SIP is a periodic investment that occurs across all market cycles. Hence, one does not need to time the market when investing via SIP mode.
- Power of Compounding
When you start to invest early and for the long term, you reap the benefits of power of compounding.An investor avails the benefits of compounding when they earn interest by reinvesting their interest. In short, your money works to generate money on their own for you. It is also referred to as the eighth wonder of the world by some.
- Rupee Cost Averaging
Under the SIP scheme, investments are made towards the preferred mutual fundsirrespective of the market condition. This results in purchasing more fund units when the market is low and fewer units when the market is rising. This averages out the average cost of mutual fund units purchased. This principle is known as rupee cost averaging.
- Ease of investing
SIP makes it very easy to invest in mutual funds online. With SIPs, you can invest as low as Rs500 per month.Investing in SIP is a hassle-free process as the amount gets automatically deducted at given intervals once your one-time mandate is approved.
- Lighter on the pocket
Unlike other modes of investments such as lumpsum mode, you do not have to empty your pockets or go all-in when investing in SIP.SIPs allow you to invest in mutual funds according to your financial condition thus not generating financial stress among investors.
If you want to gauge a fair idea on the future value of your investments, you can use an SIP calculator to help you understand the market value of your mutual fund investments. This will help you to get an estimate on the amount required to invest in SIPs to achieve your goals in a given time frame. Happy investing!