Using a structured investment plan like SIP to invest in mutual funds has become quite popular. Continue reading to learn why mutual funds are such an excellent way to invest, along with the benefits of SIP to support your future financial goals.
Everyone has dreams, ambitions, and objectives they want to attain. For example, everyone wishes to be financially secure in their lives. For example, a new car, a bigger house, or a family vacation to an exotic location. However, you can only achieve your objectives if you put up the effort necessary to make them a reality.
Using a Systematic Investment Plan (SIP) to invest in mutual funds might be a straightforward solution to help you reach your objectives. So, let's look at what SIP stands for, how they operate, the benefits of SIP, and how your financial goals can seem attainable by investing in SIP
WHAT IS SIP?
A Systematic Investment Plan (or SIP) is a mutual fund investment that allows you to invest over time. It is a systematic way of regularly investing fixed amounts of funds, such as monthly, quarterly, or semi-annual. It may be simpler to reach your financial objectives if you invest consistently in this manner.
SIP in mutual funds is a monthly investment plan in which you invest a certain amount of money in a scheme of your choice. The money is automatically deducted from your bank account because of the setup.
HOW DOES SIP WORK?
A systematic investment plan (SIP) is a simple instrument that allows you to create wealth by making small, regular deposits over a longer time horizon. There are many benefits of SIP investment in mutual funds.
When you start SIP in a mutual fund scheme, you can buy a set number of fund units. You can invest in the fund at both highs and lows. You don't have to time the market to earn money. This element of uncertainty is removed with SIP investing.
You can select to automate your investments once you've chosen the investment term and frequency. Then, give your bank a standing instruction to transfer money from your bank account to the mutual fund SIP of your choice regularly (monthly, quarterly, etc.).
WHAT ARE THE BENEFITS OF SIP IN MUTUAL FUNDS?
MARKET VOLATILITY DOES NOT AFFECT THE INVESTMENTS
Markets reflect the economy, and just as the economy experiences ups and downs, so do the markets. So while a drop in the market might wipe out some of your gains, a SIP can make these dips work in your favor.
One of the advantages of SIP prevents investors from speculating in highly volatile markets. When the market is low, investors may buy more units, and they can buy a few units when the market is high. As a result, the long-term average cost of each unit is anticipated to be cheaper, while the investment returns are excellent.
Because you invest every month, the NAV of every scheme varies, and you receive a different amount of units each month. When the markets rise, the price will increase each month, and you will receive fewer units. When the cycle reverses and markets begin to decline, the purchase price drops, and you start to get more units for the same investment. Rupee Cost Averaging is the process of investing at different periods of the market to average out the costs.
HELPS TO BUILD CORPUS WITH SMALL AMOUNTS
Another benefit of SIP investment is that it allows you to invest in mutual funds with as little as Rs. 500 per month. So even if you don't have a lot of money, you may benefit from India's growth by investing in mutual funds.
This might be a cost-effective approach to invest each month without going over budget. With the SIP step-up function, you may raise your monthly investment amount as your income rises. In addition, investors can top up their SIPs regularly with mutual fund firms.
When you regularly invest in a mutual fund scheme through a systematic investment plan (SIP), your total investment amount rises to a sizable corpus over time. The benefit of compounding is one of the main reasons for your corpus's growth. Because mutual fund returns are reinvested, and you get returns on your returns, you profit from this simple yet powerful force known as compounding.
YOU BECOME MORE DISCIPLINED WITH YOUR SAVINGS
A well-known advantage of SIP investments is that it allows investors to have a disciplined approach towards savings. In addition, it instils some financial discipline in the form of a monthly budget. Because SIPs are very flexible, they may be stopped at any moment, and investors can choose to raise or reduce their investment amount.
You may follow the golden rule of personal finance by using SIP to save first and spend later. All you have to do now is choose a monthly SIP date that coincides with your salary date. And before you start spending, you'll wind up investing every month
BOTTOM LINE
There are many benefits of SIP investments in mutual funds apart from the top 3 mentioned here, like convenience, diversification, flexibility, no charges to start a SIP, etc. In addition, SIP defies the traditional belief that making money takes a lot of planning and work. In reality, SIP demonstrates that you must avoid any complicated investment methods such as market timing and instead invest regularly to manage your funds appropriately.
FREQUENTLY ASKED QUESTIONS
Can I Lose Money In SIP?
Yes, to an extent. As mutual funds are subject to market risks, an investor can lose some money as the fund houses invest in stocks, commodities, etc. But the most significant advantage of investing in mutual funds via SIP is staying invested for a long time and not letting the market’s ups and down bog you down.
Can I Withdraw SIP Anytime?
Most mutual fund schemes are open-ended and can be redeemed anytime. It mostly charge exit load of up to a year, after which there are no loads on investment redemption.
Which SIP is more beneficial?
There are many types of SIP- daily, monthly and quarterly. Depending on the risk tolerance and the amount of money available at your disposal for investment, you can choose a more suitable SIP option for yourself.
Disclaimer: All Mutual Funds are subject to market risk. Please read all scheme-related documents carefully.