SIP is an excellent long-term investment option for equity investors who want to build a sizable portfolio. SIP investments have been proven to give higher returns as compared to traditional investments like gold, fixed deposits, CD, PPF, etc. There is no general rule or fixed time frame that can be used to determine whether to invest in mutual funds or not, but financial experts agree that if you are looking for a long-term investment horizon of at least five years, If you are working professional and have an appetite to bear market-based risks, then Mutual Fund SIP can be the best option.
Systematic investment planning is the best way to inculcate the habit of saving and investing. Also, if you start Systematic Investment Plan well in advance, you have a longer investment horizon to take advantage of the power of compounding. A SIP investment also stays out of the market timing game. Due to rupee cost averaging, SIP investments are less impacted by market volatility. Compared to down markets, you purchase fewer units when markets are up.
Systematic Investment Plans( SIPs) come in two varieties:
Regular SIP: Under this strategy, a fixed sum of money is deposited into a mutual fund scheme at predetermined intervals( such as weekly, monthly, or quarterly).
Flexible SIP: Depending on the investor's convenience, they can change the amount or frequency of their investments.
Benefits of starting a mutual fund SIP:
1. Freedom of starting from a small Amount - Even people with small wealth can use SIP to invest in mutual funds and benefit from the advantages of doing so. The simple operation of the program is based on periodic investments.
2. Investment is Easy and Simple - The investor can start ECS on his bank accounts and invest a certain sum in SIP mutual funds each month. Regular investment is required for wealth to be created. SIP also helps you regularise your investment. Due to our busy schedules, most of us would ignore how simple and quick it is to automate our investing.
3. The Advantages of Early Start Investing - Making consistent investments and getting started early are the keys to increasing your wealth. Compounding will help you to accumulate wealth more the earlier you begin investing in your life.
4. Financial Discipline - SIP in Mutual funds means that you have to invest a fixed amount at regular intervals. It brings financial discipline where you first allocate money for savings and invest for future expenses. It means that you are being disciplined and planning for the financial needs of the coming days. Being disciplined helps you take logical decisions and make judicious investments.
5. Cost Averaging - The stock market is a volatile place. No matter how much expertise a person has, they can never predict its rise and fall. Even when the market is falling, people investing through SIP can take advantage of this situation. When prices are falling, your investment gets added to the SIP account, which ultimately benefits the investor.
6. Compounding Power - SIP helps you to increase your profit due to the power of compounding. You can earn good returns by investing a small amount for the long term. You can reach your long-term financial goals by setting aside a small amount and growing it into a larger portfolio.
7. Better Returns - Since market conditions do not guide SIP investments, individuals are better equipped to make the most of opportunities that may arise in different market conditions. Furthermore, the compounding feature of SIPs further helps in generating risk-adjusted returns.
SIP in Stocks Versus Mutual Funds:-
SIP in Stocks - With the help of SIP in stocks, investors can an amount/ quantity-based investment in equities on a regular basis. A fixed sum of money is invested over a period of time when you use a SIP to buy stocks or direct equities. You are entitled to a certain number of stocks based on this sum.
SIP in Mutual Funds - Investors can invest in mutual funds schemes thanks to SIPs. You are given a specific number of mutual fund units when you invest. The Net Asset Value( NAV) determines how many units are received.
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