Several investors would have stumbled across the term – SIP investing. SIP or systematic investment plan is a mode of investment that allows individuals to invest in the markets in a disciplined manner. If you are unsure if you should invest in mutual funds through SIP mode of investment or not, you have come at the right place. Look no further. In this article, we will focus on some of the benefits enjoyed by SIP mutual fund investors. Read on to know the benefits of SIP investments.
Benefits of SIP
Here are 5 benefits of SIP mutual funds that an investor must be aware of:
- Rupee cost averaging
SIP mutual funds ensure that an investor invests in the markets on a regular basis despite prevalent market conditions. This helps an investor to accumulate a higher number of SIP mutual fund units when the markets are hitting rock bottom and vice versa. This in turn helps an investor to average out the total cost spent towards purchasing mutual fund units over a period of time. This concept is widely known as rupee cost averaging.
- Helps to instill investment discipline
SIP investments help investors to automate their mutual fund investments. Basically, SIP mode of investment ensures that an investor invests in mutual funds on a regular basis. This helps to inculcate a sense of financial discipline among investors.
- No need to time the markets
Another reason why you should consider investing in mutual funds through SIP mode of investment is that unlike lumpsum investment, you do not need to time the markets. Timing the markets, an art which is not successfully achieved by all investors might result in substantial loss of capital. SIP investments negate the need to time the markets as an investor regularly invests in the markets.
- Power of compounding
Compounding is an investment concept wherein the gains earned on an investment are reinvested to earn accumulate a higher sum of money over time. Also referred to as the eighth wonder of the world by certain market experts, compounding helps to turn a small, insignificant sum of money into a substantial amount of money. To earn the maximum benefits of the power of compounding, you must try to begin investing as early as possible.
- Low minimum investment amount
Investing in mutual funds through SIP mode of investment helps investors to enjoy a low minimum investment amount. An investor can invest as little as Rs 100 per month in mutual funds through SIP mode of investment. This allows even economically backward sections of society to invest in the markets.
Perseverance and patience go a long way when it comes to investing in the markets through the SIP mode of investment. SIP investments are quite flexible in nature. As an investor, you have the liberty to choose the investment amount, frequency of investments, type of mutual funds you wish to invest in, type of SIP, investment duration, etc. You can take the services of a financial advisor or a mutual fund expert if you need help with your SIP investment decisions. Happy investing!