If you are new to the world of investing, you must be well-adverse with mutual funds and the benefits it offers to investors. But, are you acquainted with SIPs? According to the Association of Mutual Fund in India (AMFI), the mutual fund industry has added around 9.6 Lakhs SIP accounts every month during the FY 2019-2020. So what makes SIPs so special? Why should you invest in mutual funds online via SIPs? Before getting to that, let’s understand what an SIP is.
Systematic Investment Plan or widely known as SIP is a mere tool to invest in mutual funds. Under the SIP scheme, an individual invests a fixed amount periodically in his desired mutual funds at fixed intervals which are pre-determined by the investor. The amount can be as low as Rs500 each month and the frequency can be daily, weekly, monthly, quarterly, bi-annually, or annually.
Why should you invest in mutual funds via SIP?
We all have dreams and financial goals – such as buying a new car or house, a child’s higher education, retiring rich, etc. Investing in a mutual fund investment best-suited for you can act as the first step towards achieving these goals. Investing in mutual funds via SIP has its own set of benefits. Let’s understand them:
- Lighter on the pocket
SIP investments are lighter on the pocket as compared to other options such as lumpsum mode. You can start an SIP investment with an amount as low as Rs500 per month. Hence, SIPs allow you to invest in mutual funds according to your financial conditions without creating any burden on you.
- Regular investing
Investing in mutual funds via SIPs require allocating a part of your income to a particular scheme regularly. This develops a sense of regular savings and the wisdom of financial decision making. Also, regularly investing in a scheme instils financial discipline.
- No expertise needed
To invest via SIPs, one does not need to be an expert of the market and its volatility. This is because SIPs are designed in a way that the potential loss arising from one of the mutual fund investment can be set off against potential gain by another.
- Reduces the average cost
Under the SIP scheme, investments are made towards the scheme irrespective of the market condition. This results in purchasing more units when the market is low and fewer units when the market is uprising. This averages out the average cost of mutual fund units. Thus, SIP investments work on the principle of rupee cost averaging.
- Power of compounding
One avails the benefits of compounding when they earn interest by reinvesting their earnings. The magic of compounding, also claimed as the eighth wonder of the world by some can transform a small amount which is regularly invested into a substantial corpus.
Experts always recommend starting early with smaller amounts rather than waiting to accumulate a huge sum for investments to benefit the most from the power of compounding. So start investing in SIP today. Happy investing!