5 Benefits of Investing in SIP

Benefits of Investing in SIP – Systematic Investment Plan

If you are looking to earn some extra income through investment than you should know that investing is a long journey and one needs to be patient if they want to create wealth. An investment must always be chosen keeping in mind the investor’s risk appetite, investment horizon, and ultimate financial goal. Mutual funds can be a smart way to start investing for someone who wants to get exposure to the equity market but doesn’t have much knowledge about the stock market. Mutual funds collect money from investors and invest this pool of money in various assets like equity, debt, government bonds, money market instruments. Mutual funds help balance risk and diversify an investor’s portfolio. The best part about mutual fund investments is that one can start investing in them with an amount as low as Rs. 500 per month through SIP. Investing in mutual funds through SIP has several advantages.

To find out the benefits of investing in mutual funds through SIP read further. First, let us understand what SIP stands for and how it works.

What is SIP?

Systematic Investment Plan or SIP is a type of investment method where you can invest a fixed amount at regular intervals in an investment scheme. When an investor chooses to pay his/her installment amount through SIP, a fixed amount is debited from their account, depending upon the frequency chosen by the investor and is transferred to the scheme which they’ve invested in.

Benefits of SIP

1. Inculcates the discipline of investing regularly

   As stated earlier, SIP investments are made at regular intervals i.e. either monthly, quarterly or every six months on a predetermined day. The SIP amount is automatically debited from an individual’s account and the amount is invested in the scheme chosen by the investor. This disciplinary approach of regular investments is of big advantage to the investor as he/she doesn’t need to actively track the market.

2. Convenience

   Another good thing about investing via SIP is that it’s a hassle-free process. All an investor needs to do is to instruct his/her bank to enable auto-debits from their account. This way the investor doesn’t need to go manually and pay his/her installment amount, the technology does the job for him/her.

3. Rupee Cost Averaging

   Rupee cost averaging helps an investor beat market fluctuations and makes his/her investment averse to market volatility. When the stock prices hit rock-bottom, SIP allocates an investor more units, and allots lesser units when the stock prices soar high thereby, averaging out his/her savings.

4. Power of compounding

   Power of compounding refers to earning profits by investing your profits. In order to make most out of compounding in mutual funds, one must begin investing early and stay invested for a long time.

5. Own more stocks in small quantities

   Investors will need a large surplus if they decide to purchase individual stocks directly in order to have a diversified portfolio. But when you invest in mutual funds, you can own these stocks in small quantities with just a few thousand rupees.