SIP or Systematic Investment Plan is a method of regularly investing a predetermined amount in mutual funds over a period of time rather than making a lumpsum, one-time investment.
Here are the ten reasons why investing via SIPcould be the best option for you
- Sometimes small is enough: SIP allows you to invest in mutual funds even with small amounts, even as little as Rs.500 a month. This can be of great comfort to those who are just starting to invest and do not have a lumpsum amount handy. Thus, you can invest without compromising on your other expenditures.
- Average your costs: When the market falls, your SIP (which invests a fixed amount regularly) will fetch you more units compared to when the market is trading higher. Over a period of time, your cost of acquiring mutual fund units gets averaged out, helping you make the most of market volatility. This is called rupee cost averaging.
- Power of compounding: With an SIP, power of compounding works more efficiently as investments periodically over a longer period of time.Therefore, compounding helps generate a bigger corpus in the long run.
- Automated payments:In an SIP, your instalments are automatically debited from your bank account like an EMI payment. Further, SIP gives complete flexibility in terms of frequency, that is, you can choose how often you want to invest—quarterly, monthly, fortnightly, and even weekly. You can also choose how long you want to continue your SIP—be it a few years or even perpetually.
- Instils discipline in investing:Since SIP is an automated process, it instils financial discipline in you–a much-needed attribute for wealth creation. This is particularly useful in times of extreme market movements, when one tends to engage in impulsive buying or selling. Thus, SIP helps you stick to your investment plan.
- Option to top up: In an SIP, you can choose to top up your investments at regular intervals at a fixed rate. For instance,you can choose to increase your SIP by 5% every year. If you have started with a small amount and want to increase this amount gradually in line with your income, you can opt for a Top Up SIP.
- Option to pause or stop anytime: SIP not only provides flexibility in terms of the amount and frequency of investment but also allows you to pause or stop your SIP whenever you want. You can always pause your SIP if you are going through a temporary inadequacy of funds. At the same time, you may stop your SIP if you think your financial goal is met.
- SIP is all-weather:An SIP can helpride out all short-term market volatility and average your investment costs. This means there is no right or wrong time to start an SIP. You can start an SIP and begin your investment journey anytime!
- Diversify with multiple SIPs:It is possible to have multiple SIPs going. This serves as a great diversification strategy—that is, you may have one SIP in an equity fund, one SIP in a debt fund, and so on to effectively diversify your mutual fund portfolio.
- Align SIP to specific goals: SIP can be used to meet specific goals, such as children’s education, retirement, vacation, and even buying a home. You may have a Goal based SIP for each of your financial goals and continue them until your goals are met. This ensures a focused approach in investing.