WHAT IS SIP AND SHOULD YOU START INVESTING NOW?
You must have surely stumbled across the term SIP investing at least once in your life. Systematic Investment Plan, or commonly known as SIP is a popular investment tool that allows investors to invest in mutual funds in a systematic and disciplined manner. This article aims to help you recollect what an SIP investment is and whether or not should you start investing in SIP. Read on to get a clearer picture.
What is SIP?
SIP is merely an investment tool to invest your money in mutual funds. Thus, it is important to not confuse SIP as an investment product. Under SIP investment, fixed and regular investments are made towards specific mutual fund schemes on a regular basis at periodic intervals for a given period of time. SIP investments are quite flexible in nature. It allows investor to choose the mutual fund schemes they wish to invest in, determine the investment amount, the periodicity of the investments, duration of the investment, type of SIP, etc. according to an investor’s convenience. Before we get to whether you should invest in SIP or not, let’s see some of the advantages of SIP investments.
Advantages of SIP
Following are some of the benefits of SIP enjoyed by investors when they choose to invest in mutual funds in a systematic manner:
- Power of compounding – Power of compounding is an investment concept wherein the returns on an investment are further invested to earn more returns. Over time, the potential returns on mutual fund investments grows manifold. Thus, to enjoy the maximum benefits of the power of compounding, one should start investing in mutual funds as early as possible and stay invested for a long time.
- Rupee cost averaging – SIP ensures that an investor invests across different market cycles (bullish and bearish market cycle) throughout their investment duration. So, as a result, an investor ends up accumulating lesser units of mutual fund units when the market is at the peak as compared to when the market is at the bottom and vice versa. This averages out the total cost of the mutual fund units purchased. This concept is known as rupee cost averaging.
- Low investment amount – Unlike lumpsum mode of investment, an investor does not have to burn a hole in their pockets to invest in mutual funds. With SIP investment, you can invest in mutual funds with an investment as low as Rs 100 per month.
- Convenience – SIP allows investors to invest in mutual funds online from the comfort of their home. This is very convenient for investors who do not wish to dedicate their efforts and time by standing in long queues and doing the investment offline.
- Disciplined investing – Investing in SIP ensures that an investor invests in mutual funds on a regular basis and thus inculcates financial and investment discipline among investors.
Should you start investing in SIP now?
Rather than waiting for a substantial amount to invest in mutual funds through a lumpsum mode of investment, you can begin today with SIP investments that allows you to invest smaller, insignificant investment amount. SIP way of investing is a good way to achieve your financial goals (be it short-term or long-term financial goals). Happy investing!