A systematic Investment Plan (SIP) is just one of the ways through which you can invest in mutual funds. A mutual fund is a way in which a large number of people who are willing to contribute small amounts come together. The amount collected by all of them will be handed over to the Fund Manager to manage and generate returns for you. Through your single investment in mutual funds, you actually invest in multiple companies. That means a mutual fund is a group of investments packaged into a single investment.
Here in this article, we will discuss some of the advantages that make an investment in a Systematic Investment Plan (SIP) best among other investment avenues.
Table of Contents
Start with a small amount
If you feel that you do not have money to invest or have less money then do not let this ignorance become the reason for not investing. Because nowadays you can start investing in Mutual Funds with a very small amount which starts from Rs.500. Mutual Funds are a very good tool for your investment provided you stick to your investment decision and continue with your investment for a long period of time. Because investments made from mutual funds give you good and attractive returns over a long period of time.
Financial Discipline
If you are investing in mutual funds through SIP, then it creates a feeling of financial discipline in you. Because investing in this way, you have to pay money from your account every month, which encourages you to manage your budget and control expenses. Also, this investment made every month improves your saving habit which helps you in making you rich in the long run.
No need to time the market
By investing in mutual funds through SIP, you do not need to keep an eye on the stock market all the time because your investment does not see much effect from the market fluctuations. Although you are investing in the share market in this way, the experience of mutual fund companies and investing in the long term make your investment safe to a great extent.
Advantage of Compounding
The biggest advantage that comes with investing in mutual funds through SIP is the compounding interest. It has also been called the 8th wonder of the world as it can do wonders with your invested amount provided you have given that amount of time to your money. Compounding interest takes a little longer to show its miracle and since we are going to invest our money for a long period of time in mutual fund investments, it is natural that our investments will also have the benefits of compounding.
Can stop anytime
The most significant advantage of investing in this way is that you can stop your investment whenever you want. By stopping, I mean to stop it permanently and also to stop it for a temporary period of time. Here you are given this facility by the company that when you need, you can close your invested amount and if you want, very soon the entire amount will be deposited in your bank account.
The average cost of a Rupee
By investing in mutual funds through SIP, the average cost of your investment gets reduced. That is because in this way, you are investing continuously every month and your investment does not depend on the behavior of the share market. You will be allotted fewer units when the stock market is going up with full growth, in the same way, you will get more units for the same investment in the bearish time of the market. In this way, the average cost of the units deposited in your account gets reduced.
Multiple SIPs
The beautiful thing is that here you can plan to increase the return on your money by investing money in more than one SIP at a time. It is believed that we should always divide our portfolio into different investment avenues like Debt, Equity, Tax Saving, etc. By doing this, our investments can be saved to a great extent from the adverse effects of the share market. By doing more than one SIP, we can do this easily and we can control the damage that occurs.
Bottom Lines
Mutual Fund investments are a great tool to build wealth in the long term. But you have to keep investing in it regularly and investing through SIP is the best option to do that. It has manifold advantages over the other options of investing. But mutual fund investments are subjected to market risks so you must be aware before making any investment with them.