Benefits of SIPs

Every investor is faced with the dilemma – lump sum or systematic investment plan (SIP) while considering mutual funds. Both these options have certain advantages and disadvantages. However, the benefits of SIPs for novice investors are significant. Continue to read more about these benefits.

A systematic investment plan (SIP) allows investors to invest a certain amount at regular intervals in their chosen mutual fund schemes. It is a convenient and excellent way to build wealth over the long term. In addition to riding out market fluctuations, SIPs inculcate financial discipline with the habit of saving regularly.

Benefits of SIPs

🔹 Rupee cost averaging

Although it may sound complex, rupee cost averaging plays a crucial role in minimizing the risk of market volatility. The investment amount is predetermined in a SIP. This means that more units are allotted when the market downturn decreases the net asset value (NAV) and vice versa. Rupee cost averaging evens out the market fluctuations and averages the effective purchase price.

🔸 Power of compounding

Compounding occurs when the returns on investors’ investments earn additional income. While this may sound simple, the implications are significant. The income earned on the SIP can be reinvested, which over a period has a snowballing effect and increases the corpus to a sizeable amount. Power of compounding can help investors accumulate long-term wealth to meet their various financial goals.

🔹 Versatile

A lump sum investment needs a larger capital amount. In comparison, individuals can invest with as low as INR 500 to start a SIP. This makes it an affordable option without resulting in any liquidity crisis. Additionally, investors can increase the SIP amount as their incomes rise, which is an excellent way to build wealth and reach their goals faster.

🔸 Ease of investing

Most individuals do not have the expertise, skills, and time to conduct a detailed research study and analyze the markets. A SIP allows them to benefit from the experience of a professional fund manager and research team to maximize their returns. Moreover, they can automate the SIP investment by providing an e-mandate that ensures the predetermined amount is deducted from their bank account on the chosen date.

🔹 Disciplined savings

When an individual starts a SIP, a predetermined amount is invested at regular intervals in their chosen mutual fund scheme. This inculcates a regular habit of savings and brings financial discipline. This ensures individuals can achieve their financial goals without deviating and investing in market-linked investments that may deliver inflation-beating returns in the long term.

Before starting the SIP journey, it is important that individuals consider the desired goal they want to achieve. Listing down their financial goals brings clarity and ensures they choose the appropriate mutual fund scheme as each option has its specific objectives and investment philosophy. The best way to do this is to consult an experienced wealth advisor who can help investors identify their goals and choose the most beneficial mutual fund scheme to start their SIP journeys.