Planning to invest in mutual funds? Confused about whether you should go the SIP route? Read this post to know 10 reasons that make SIP in mutual funds one of the best investment options for every type of investor.
One of the most common reasons why individuals are unable to begin their investment journey in the earlier years of their life is the lack of funds. Once you start earning in your 20s, you already have so many different financial commitments to take care of that investments take a back seat.
If you are looking for ways to begin investing, Systematic Investment Plan or SIP in mutual funds can be the way to go. But why to invest in SIP? These 10 reasons will help you understand SIPs better-
With SIPs, most mutual fund schemes allow you to start investing with as little as Rs. 500 per month. This investment amount is considerably lower than the most popular investment options.
This ensures that even people in their 20s who have recently started working can start investing to meet their future goals.
SIPs are highly flexible. For instance, if you start a Rs. 1,000 SIP in a mutual fund scheme of your choice, there is no necessity to keep on investing only Rs. 1,000.
If your savings increase in the future, you have the option to increase the SIP amount or even start a new SIP in the same mutual fund scheme or any other scheme of your choice.
Moreover, there is no need to compulsorily make the SIP investment every month for any fixed duration. You can skip the SIP for a few months or even stop the investment as and when you like.
So, in case of an emergency, if you do not have adequate funds to invest, you can skip SIP payments for a few months.
The next important reason why SIP is best is its ability to make you a disciplined investor. Most investors start investing but fail when it comes to investing regularly. Regular investments are necessary to get closer to your financial objectives.
The very nature of SIPs is as such, that it adds more discipline to your investment journey. An amount fixed by you automatically gets invested in the scheme of your choice, eliminating the need for you to make the monthly investments yourself.
It is almost impossible to time the markets on a consistent basis accurately. But SIPs don't require you to time the markets in any way.
You keep on investing a fixed amount month after month irrespective of the market conditions. You will get more fund units if the market is down and fewer units if the markets are high.
Continuing from the point above, SIPs also help in reducing the average cost at which you buy the mutual fund units. The NAV of the fund is low when the markets are falling and high when the markets outperform.
So, in the long run, when you keep investing a fixed amount through SIP, the average cost of purchasing the units tend to be on the lower side as compared to making a lump sum investment when the markets are running high.
If you select the growth option at the time of starting your SIP, the returns that your investment generates would then be added again to your investment amount. This results in the compounding effect, which could generate excellent returns in the long run.
So, if you have long-term financial goals, starting a SIP in any scheme of your choice and selecting the growth option can prove rewarding.
It can be challenging for an investor not to get swayed by the ups and downs of the market. The volatility of the market often encourages people to make emotional investment decisions that generally fail to deliver expected results.
But the working of SIPs protects the investors from making such mistakes. All you need to do is to keep investing a fixed amount every month without worrying about the short-term market volatility.
The mutual fund industry has grown by leaps and bounds in India in the last few years. To protect the interest of the investors, AMFI and SEBI have introduced several stringent measures that every mutual fund scheme and AMC now needs to follow.
This has made the mutual fund industry transparent and safe for investors who are just starting their investment journey through SIPs.
Most top AMCs in India now let investors manage their mutual fund investment online. Once you start a SIP, you will receive a user ID and password with the help of which you can access your account any time you like.
You can track your SIP, switch to a different scheme, stop SIP, start a new SIP, and even redeem the units from the comforts of your home.
Now that you know plenty of reasons why SIP can be a great investment option, it is time for you to start investing as quickly as possible. Delaying your decision to start investing will only make it more difficult for you to achieve your financial objectives.
But do ensure that you understand your investment profile, including your risk appetite, investment horizon, and financial objectives, so that you can select mutual fund schemes that best suit your requirements.