SIP, otherwise known as Systematic Investment Plan is an investment tool that helps you grow your wealth over time, bit by bit. SIP involves investing an amount of money, over regular interval of time alongwith investment of consistency and patience during the investment period. WIth SIP investment, you can develop a sense of disciplined investment practice, where you get your returns averaged as per the market conditions.
Now that we have taken care of understanding the basics of SIP investments, let’s see what benefits they have to offer an investor.
- Compounding Effect:
The ‘Compounding effect’ is the magic ingredient in the recipe of SIP investment. As one regularly invests throughout a longer time frame (let’s say 7 years or more), they can experience an exponential growth in their returns. This exponential growth may seem painfully slow at first few years, but once the jump in growth begins, the returns received are unbelievable.
- Diversification:
SIP investment allows diversification in your portfolio. Simply said, “Don’t put all your eggs in one basket.” With diversification, you get to reduce the risk from losses due to market volatility. Investing in equities alongwith other securities such as bonds or debts, can reduce your losses compared to when you only invest in equities.
- Flexiblity in investment:
With SIP online investment, one gets the benefit of investing according to their terms. SIP allows the desired amount of investment to be made, the frequency of investment, the investor is comfortable with, the choice of risk appetite, and the time of withdraw. The fees associated with investment management are also relatively small, making it one of the most popular investment tool among investors.
- Convenience:
Some investors tend to go through the maket and monitor each and every move of the market, some do not tend to do that. In that case, convenience come in the form of Fund Managers who take care of the investors’ portfolios and manage them according to the market to ensure maximum returns. With SIP, one also don’t necessarily need to manually transfer their investments from the bank accounts. One set up and everything is automatic and managed. Great option for investors who do not have the time to manage their portfolio.
- Regular investing habit:
As one starts investing with SIP online, the regular investment encourages a disciplined habit of investing(or saving if that is also included in the wealth building process) on a regular basis
- Rupee Cost Averaging Benefit:
Over a period of time, the market goes goes up and down, bringing the chances to buy units for cheap. With SIP, comes the consistent investing habit and over a longer period of time, the Good prices and the bad prices average out to give a considerably good returns. This does not need you to consider the best day to invest. All you need to do is to invest regularly, and follow a disciplined strategy for investment.
Mutual funds, especially when accessed through the SIP mode, offer a combination of simplicity, diversification, professional management, liquidity, cost-efficiency, historical performance, and tax advantages. This makes them an attractive and popular investment choice for a broad spectrum of investors, from beginners seeking a straightforward way to invest to experienced individuals looking for diversification and long-term wealth creation. It's essential for investors to conduct thorough research and select the right mutual funds that align with their financial goals and risk tolerance, but the widespread appeal of mutual funds is certainly well-founded.
