An SIP (systematic investment plan) is one of the prudent instruments to start your investment journey. This is an excellent instrument that allows you to invest a particular amount periodically in mutual fund investment over a time period. With numerous mutual fund types and schemes on offer, beginning an SIP investment can come across as an excellent way to imbibe investment habits and create wealth over a long time period.
If you invest in an SIP, you can meet your long-term financial goals and even finance your short-term life goals like a vacation abroad, fund car loan’s down payment, etc. However, before you begin making SIP mutual fund investments, you must deep dive into an SIP and understand why this instrument is helpful in saving your income and creating wealth over the long term.
- Inculcates disciplined investing habit
If you are one of those looking to inculcate the habit of investment, open an SIP in the preferred mutual fund. You can begin an SIP either online or offline with as low as Rs 500 in the mutual fund scheme of your choice. Once you opt for this option, a specific fixed amount is automatically deducted from your savings account and transferred to your SIP account periodically. Putting your SIP investment in automatic mode ensures constant investing without any lapses.
- Offers the power of compounding
Compounding is an important concept where the interest constituent earned from your investment is reinvested along with your initial funding, which starts to generate returns on its own. Over a long time period, this process results in a substantial generation of wealth on your investment. As you begin your SIP with a small amount, this permits you to start investing in a preferred mutual fund of your choice very early to gain the power of the compounding effect. For example, a small monthly SIP investment of Rs 1,500 in equity fund at an assumed return rate of 12 per cent per annum for 30 years can yield an overall corpus equaling Rs 52.42 lakh. You can also use an online SIP calculator to compute the returns generated on SIP investment.
- Eliminates the need of timing the market
You should have an excellent understanding of macroeconomic scenarios, geopolitical trends, policy impacts, technical analysis, etc. to time your investments in the market. In case you are new to the market, then tracking the market investments might not be a simple task for you. In this case, you must use the SIP route to make mutual fund investments as doing so ensures regular and automatic investment, which would save you from the major dilemma of timing your investments depending on volatilities. Also, going for the SIP mode allows you to average out your mutual fund investment cost by purchasing higher units during bearish market phases.
- Activates the feature of rupee cost averaging
As investment through an SIP remains the same on every instalment, the units bought vary based on the levels of the market movement. A lower number of mutual fund units are purchased during the bullish market and a higher number of mutual fund units are purchased during a bearish market. It helps in automatically averaging the cost involved in market investment.
An SIP investment is an investor-friendly financial mode in the market. The benefits of an SIP are numerous i.e., it endows rupee cost averaging benefit, disciplined investing, compounding effect, etc. So, by using the SIP mode of investment, you can accumulate huge amounts of wealth over a long time period.