Three Reasons Why You Should Start an SIP Today!

Everyone has goals, ambitions, and dreams that they desire to achieve. For example, everyone wants financial security in their lives. Some other examples would be a new car, a larger house, or a family vacation to an exotic place. However, you can only attain your goals if you put forth the necessary work to make them a reality.

Using a Systematic Investment Plan (SIP) to invest in mutual funds could be a simple way to help you meet your goals. In recent years, one can invest in mutual funds online through a systematic investment plan, or a SIP – both have grown in popularity. So, let’s look at what SIP stands for, how they work, the benefits of SIP, and how investing in it can make attaining your financial objectives more realistic.

What exactly is a SIP?

A Systematic Investment Plan (SIP) is a type of mutual fund investment that allows you to invest over time. It is a method of investing a predetermined sum of money on a regular basis, such as monthly, quarterly, or semi-annually. The idea is, if you invest consistently, you may find it easier to achieve your financial goals.

As a monthly mutual fund investment plan, with SIP you can invest a set amount of money in a mutual fund scheme of your choosing. Because of the configuration, the money is automatically debited from your bank account.

Working on a SIP

A systematic investment plan (SIP) is a simple tool that allows you to build money over time by making small, regular installments. SIP investments in mutual funds have numerous advantages.

When you begin a SIP in a mutual fund scheme, you can purchase a predetermined number of fund units. The fund can be invested in both highs and lows. To make money, you don’t have to time the market. SIP investing eliminates this level of uncertainty.

Once you’ve determined the investment duration and frequency, you can choose to automate your mutual fund investments. Then, direct your bank to periodically send funds from your bank account to the mutual fund SIP of your choosing (monthly, quarterly, etc.).

Benefits of a SIP

• Investments are unaffected by market volatility

Markets represent the economy, and the markets, like the economy, go through ups and downs. While a market collapse may wipe away some of your gains, a SIP can make these drops work to your advantage.

One advantage of SIP is that it keeps investors from speculating in very turbulent markets. When the market is low, a SIP purchases more units, whereas when the market is strong, a SIP may purchase fewer units. As a result, the long-term average cost of each unit is expected to be lower, with high investment returns.

Since you invest monthly, the NAV of each plan varies, and you receive a different number of units each month. When the markets rise, the price rises month after month, and you obtain fewer units. When the cycle turns and markets begin to fall, the buying price falls and you begin to get more units for the same investment. The method of investing at multiple times of the market to average out the costs is known as rupee cost averaging.

• Aid in the building of corpus with small amounts

Another advantage of SIP investing is that you can invest in mutual funds with smaller amounts that fit every pocket. You can start with a SIP of Rs. 500 every month. Even if you don’t have a lot of money, investing in mutual funds can help you benefit from India’s long-term growth.

This could be a cost-effective way to invest each month without exceeding your budget. You can increase your monthly investment amount using the SIP step-up option when your income rises. Furthermore, investors can top up their SIPs on a monthly basis with mutual fund companies.

When you invest in a mutual fund scheme on a regular basis using a systematic investment plan (SIP), your total investment amount grows to a substantial corpus over time. One of the primary causes for your corpus’s increase is the benefit of compounding. You benefit from the power of compounding since mutual fund returns are reinvested and you get returns multiplied on your returns.

• You become more conscious of your savings

SIP investments have the well-known virtue of allowing investors to save in a disciplined manner. It also instills financial discipline through the use of a monthly budget. Because SIPs are extremely flexible, they can be terminated at any time, and investors can choose to increase or decrease their contribution amount after checking projections using the mutual fund calculator.

You can use SIP to save first and spend later, following the golden rule of personal finance. All that remains is for you to select a monthly SIP date that corresponds with your salary date. And you’ll end up investing every month before you start spending.

The Bottom Line

Apart from the top three highlighted here, there are several advantages to SIP investments in mutual funds, including convenience, diversification, flexibility, no start-up fees, and so on. Furthermore, a SIP goes against the conventional wisdom that generating money requires extensive planning and effort. In actuality, a SIP illustrates that you should avoid complex investment approaches such as market timing and instead invest consistently to properly manage your investments.