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What is SIP and its Benefits?

24 October 2018 No Comment

One cannot deny the fact that investment in mutual fund schemes helps to beat inflation and also helps to grow the wealth manifold. But there are also risks when it comes to mutual fund investments.

Mutual funds invest in the market if you do not time your investment well then you will end up losing all the money in the market. The market is volatile and a wrong investment can wash away all your capital. This is where the systematic investment plan SIP comes into play.

SIP Helps You to Archive Your Life Goals

Be it to go on an expensive vacation or to buy your dream car, SIP what is SIP is a way to start your financial journey and to save money in a disciplined manner. The systematic investment plans are well researched and diversified investment plans and it helps those who aim to build wealth by investing money for the long term. SIP is definitely not for those who are looking just for short-term gains.

SIP is not speculation. You may be following the trend of the market and investing lump sum money in those funds that have done well in the past. This creates momentum play and you are in and out of your investment quickly. But this is not investing. This is ok if the trend of the market is up but as soon as the market moves to a downtrend then all the wining will soon turn into a loss.

The mutual fund investment schemes have lots of opportunities to make wealth but you need to have the right guidance and financial discipline to reap the benefits. One of the best ways to participate in mutual funds is through a SIP.

Understanding What Systematic Investment Plan Means

The SIP is a way to invest in the mutual fund schemes regularly. It is like a recurring deposit where a fixed amount of money is invested regularly. The difference is that this money is invested in buying mutual fund units. Also, the investments that you make into mutual funds expose you to the risks in the market.

You have a disciplined approach when you invest via a SIP and you understand how to save regularly. SIP, thus, helps to build wealth in the longer term.

It is, thus, a mode of investing in the mutual funds and since your money is invested in mutual funds it carries the market risk.

You can choose a date when you wish the money to get deducted from your account to get invested in a mutual fund through a SIP. This amount can be as high or as low as you wish to set it to. Many mutual fund schemes will also allow you to transact on the fund online.’

Benefits of Investing Into SIP- SIP Advantages and Disadvantages

There are many benefits of investing in the SIP rather than opting to invest in the traditional methods in mutual fund schemes.

SIP Helps in Rupee Cost Averaging

You invest a fixed amount of money in a SIP scheme and this can be chosen by you. You can choose the amount of money that you wish to invest in the scheme as well as the time period of investment. This could be daily or quarterly etc.

When you do this and use SIP calculator you spread out the risk of investment and, thus, when you buy at the market peak you buy lesser units and when you buy at the bottom then you buy number of units. At the end, you are averaging out your investments in the market. When you invest regularly you get to participate in different trends in the market.

This is known as the rupee cost averaging and the process lets you reduce the average buy price and lets you, thus, benefit from the SIP mutual fund scheme.

You get to spread out the risk in a long-term horizon and this gives you a better investment price.

SIP Helps in the Power of Compounding – What Is SIP

When you invest in a SIP you are investing in a disciplined manner. SIP benefits and risks should be known. The money will start to grow exponentially because of the effect of compounding. This is because through a SIP investment your money is earning cumulative and this thus lets you see a lump sum amount in the future. Use the SIP benefits calculator.

SIP Investments Keep You Stress-Free

Timing the market SIP meaning is a big stress and unfortunately, no one is able to time the exact high and the exact low of the market. With a SIP investment options, you can invest in the market at varied times and thus not worry about what the market is doing. You do not have to review and rebalance your portfolio regularly. Tax benefits of SIP are also there.

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