According to a recent data by the AMFI (Association of Mutual Funds in India), the SIP (systematic investment plan) industry contributes around 15% of the net mutual fund’s AUM (assets under management). It further states that the net amount of SIP investment accounts in December 2021 stood at whopping 4.91 crores. Furthermore, around 4.16 crore SIP investment accounts are allotted in equity mutual funds, which is around 85% of the total SIP investment accounts. Apart from this around 31.2 lacs SIP investments amounts are allotted to hybrid mutual funds which comprise of both equity and debt funds. This increasing trend in SIP inflows in equity funds is despite the market corrections in the equity markets. Market experts believe that these inflows are a result of investors’ faith in robust growth and recovery of the Indian markets. In this article, we will focus more on why SIP mode of investment is preferred when investing in equity mutual funds. But, before we get to that, let’s quickly recall what SIP investments are.
What is SIP?
SIP or systematic investment plan is an investment tool that allows investors to invest in mutual funds in a planned and regulated manner. Under SIP mode of investment, a predetermined investment amount is regularly allotted towards specific mutual fund schemes at regular intervals for a predetermined investment tenure.
Why are SIP investments preferred among investors?
Here are a few reasons why investors prefer investing in equity mf through SIP mode of investment:
- Regular investing
SIP investing ensures regular investing in the markets which aids to introduce a sense of financial discipline among retail investors. Regular investments ensure that you do not overspend on frivolous expenses. - Rupee cost averaging
Regular investing has another benefit – rupee cost averaging. Basically, when you continuously invest in the markets despite the prevalent market cycle, you end up averaging the total cost spent on buying units of mutual fund schemes. How? Well, regular investing in the markets ensure that you invest in both the ups and downs of the markets, which further helps you accumulate lower number of units when the markets are high than when they are down and vice versa. - Power of compounding
SIP investments also help investors enjoy the power of compounding. Compounding ensures that you earn substantial rate of returns on your investments by re-investing your returns. To enjoy the maximum benefits of compounding, it is advised that you stay invested in the markets for a longer duration. - No need to time the markets
Market timing is an activity undertaken by several investors in an attempt to catch the markets at its low. Basically, it works on the principle of buy low and sell high. However, not everyone is able to achieve the same. Several investors end up incurring substantial losses on their mutual fund investments in an attempt to time the markets. When you invest in mutual funds through SIP mode of investment, you end up making regular investments in the markets which negates the need of timing the markets.
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