There are numerous securities for investors to invest in. The main idea is to invest in different securities and diversify the investment portfolio. When discussing diversification, one cannot ignore the importance of mutual funds. Through mutual funds, you can invest in a wide range of securities, including bonds, stocks, and money-market instruments. They are investment vehicles that help you benefit from the performance of diversified securities. While you can buy mutual fund units directly, some investors prefer investing via a Systematic Investment Plan (SIP). Learn benefits of investment in SIP to know how it is a smart way to buy mutual fund units.
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Understanding SIP
Systematic Investment Plans (SIPs) are a feature in mutual funds that enable investors to regularly invest a fixed amount at predetermined intervals, such as monthly or quarterly. This disciplined approach to investing offers benefits like rupee cost averaging and compounding. SIPs make investing more manageable, as they accommodate varying budget sizes and reduce the impact of market volatility. By steadily accumulating units over time, investors aim to achieve long-term financial goals while minimising risks associated with timing the market.
Recommended Read: Things you must remember before starting sipBenefits of investing in SIP
Investment in SIP is continuously gaining hype. SIPs come with numerous benefits, from cost averaging to flexibility. It is also perfect for small or new investors to learn how mutual funds work. Here are the pros of SIP mutual fund investments:
- Allows You to Start Small
Every mutual fund comes with a NAV (Net Asset Value). It determines the per-unit price of a mutual fund scheme. Beginners and small investors might not have the capital to buy more mutual fund units. However, they can always start small by investing in mutual fund schemes through SIPs. You can invest as low as INR 100 or 500 and enjoy SIP returns.
- SIP Investments Introduce Financial Discipline
Most of us think of investing regularly in mutual funds and building wealth. However, we get busy in our daily lives and forget about regular investments. Many investors forget after investing in one or two mutual fund schemes. You can make smaller contributions at fixed intervals over time. These smaller investments will add up to offer substantial returns in the future.
Recommended Read: About Demat Account- Increased Flexibility
No one will force you to invest a fixed amount every month in a mutual fund scheme. You can increase the SIP amount as and when needed. Many investors start small and increase their investment amount after earning profits. The flexibility offered by SIPs is unmatchable. Try a step-up SIP where the investment amount is increased a little after each instalment.
- Make an Exit Whenever Needed
The flexibility of SIPs is not only limited to the investment amount. Investors are allowed to stop the SIP whenever they feel like it. Many SIP providers allow investors to stop for a few months and start again. It is beneficial for investors going through a crunch period. They can stop the SIP investment for a while and start again when situations are favourable.
- Rupee Cost Averaging
Investment in SIP can help reduce the average cost of purchasing mutual fund units. Cost averaging allows you to make investments based on market conditions. Since you are investing a fixed amount with SIP, lesser units will be purchased when prices are high. On the other hand, more units will be bought when the market rates are low.
- Leverage the Power of Compounding
SIP allows the capital appreciation of securities. Returns generated by a mutual fund are re-invested. The value of the portfolio will increase with time, and you will enjoy compounded returns. You can also select a top-up SIP to ensure future growth.
- Helps Avoid Compulsive Decisions
Investment in SIP will leave no place for emotional decisions. Since you will invest a fixed amount every month, there will not be any emotional or compulsive decisions. It is hard for investors to stay on track and invest regularly, irrespective of market ups and downs. Amidst the market disruptions, they end up making a poor investing decision. SIP prevents this, as you invest regularly, irrespective of market volatility. It allows you to ensure long-term growth and multi-fold returns.
- Increased Transparency
SEBI and other regulatory authorities have introduced strict rules for mutual fund companies/providers. They have to provide investors with all the details regarding the fund. Because of this, SIPs have become safer for new investors. Mutual fund providers are bound to maintain transparency due to strict compliance norms.
- Easier Decision-Making
Investment in SIP is comparatively easier in terms of decision-making. You don’t have to time your investments according to the market. You continue investing the same amount in SIP. There is no need to spend hours in research to time the market. You simply pay your SIP instalments and watch your investments grow.
In a Nutshell
A Systematic Investment Plan (SIP) offers a structured and disciplined approach to investing in mutual funds, reaping a host of advantages for investors. Through SIPs, even small or new investors can access the benefits of mutual funds while building a financially disciplined mindset. The flexibility to start with minimal amounts, adjust investments as needed, and temporarily halt contributions provides adaptability to changing circumstances, especially with the convenience of online demat accounts.
SIPs harness the power of rupee cost averaging and compounding, promoting steady and calculated growth over time. Importantly, SIPs mitigate emotional decision-making by removing the need to time the market. For those seeking a user-friendly investment platform with an abundance of investment options, platforms like Religare Broking offer a seamless way to invest in SIPs and tap into the potential of the financial markets, fostering transparency and long-term financial progress.
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