We know Mutual Funds are good for us to invest and get good & safe returns. There is another thing which has become very popular lately, which is, SIP Investments.
SIP stands for Systematic Investment Plan, to know why it has garnered all the hype and how you can benefit from it, read our detailed guide for the same.
What is Systematic Investment Plan or SIP Investment?
There are mainly two ways to invest in Mutual Funds, one being a lump sum or one-time investment and the other being SIP Investment.
In SIP Investment you invest a certain fixed amount every month in the mutual fund of your choice. This is achieved by automatically debiting that fixed amount directly from your bank account every month. Hence, making it easy and convenient for you to invest.
Advantages of SIP:
You can Invest very small amounts
You can start your SIP Investments with as little as ₹500/-. Even if you don’t have huge savings, this could be a kickstart towards a brighter future as you systematically invest in Mutual Funds.
You become more Financially Disciplined
Many of us have had a complaint in the past or present about not being able to save money. The truth is we tend to increase our expenditure as soon as our income increases. Whereas this shouldn’t be the case, and hence it is always advised to Save First and then Spend. So, it is sensible if you set your SIP investment date right after when you receive your income as this way you tend to start saving before spending.
You can stop the SIP any time
This is a huge benefit when it comes to investing through SIP since there is no fine if you decide to stop it. Unlike RD (Recurring Deposit) where if you cancel it you incur a charge. In SIP, you have the option to opt-out and get your money back or let it stay invested in the mutual fund.
You can skip SIP payment
Which means it gives you full liberty to skip a payment. If due to any circumstance, you are unable to fulfil the investment routine in a particular month. This makes it convenient for you to manage your finances. The best part being you don’t get charged any fee or fine for the skipping the payment.
You can start a new SIP if you have more money
More money definitely means more spending, but, for the wise, it could also mean more investments. You can always start a new SIP with the extra income you have in either the same mutual fund or a different fund depending on your choice and goal. This surely means making your future safer and secure.
You benefit from the Compounding Effect… Sweet
The best thing about Mutual Funds is that you will benefit from the compounding effect. This means when you invest you get returns, these returns are again invested hence increasing your investment and giving you more returns. This is known as the compounding effect which is the reason your investment grows exponentially.
No need to worry about the market
This means you can invest without timing your investment according to the market. Unlike the stock market where you need to carefully plan out everything. Hence, if the markets are high, you will buy fewer units for the mutual funds with your investment and when the markets are low the SIP will buy more units for you. Therefore, you do not pay a very high amount for any unit of mutual funds. This concept is called Rupee Cost Averaging.
This is something very important when it comes to investments since if there is no record of what happened in the past how can the future be determined. Hence SIP Investment has provided huge returns over a period of time.
For Example, if you had started a SIP investment of ₹3000/- with HDFC top 200 in the year 1999. In 15 years time your investment, which would have been ₹5.4 Lacs, would be worth a whopping ₹35 Lacs!!
SIP Investment is a great form of investment since it saves you from Market Volatility, Short Term Risk, emotional bondage, impulsive reactions and so on and so forth. Investment in Equity markets is necessary for a varied portfolio and SIP is important to help you invest in the same at a very safe speed. Learn more about mutual funds here.