What is SIP and Its Benefits?

What is SIP?

SIP or Systematic Investment plan is a wealth creation tool that allows investors to take a position in a certain planned amount on a monthly, quarterly, basis. During a mutual fund scheme. SIP functions quite like a recurring deposit. The main difference is that in SIP, a sum that you simply opt for gets invested in a mutual fund scheme of your preference on a specified date regularly for the pre-determined duration, and not in a bank deposit, as is that the case with recurring deposits. Investments via SIP in mutual funds are thus subject to market risk (depending upon the fund). The minimum amount you can you invest via SIP can differ from one fund house to a different, from one scheme to another.
Given its nature of the investment, SIP helps impart financial discipline and inculcates regular saving habits. It allows individuals to take a position regularly without wrestling with market sentiment, index level, etc. Say, for instance, you have opted for a mutual fund scheme where you have to put a particular sum of money each month. Not only would you have to make time to do it, but you will also have concerns about the market conditions and possibly even think about postponing your investments. SIP puts an end to all these worries. The money gets automatically invested in a scheme at regular intervals, without any effort from your part. SIP amount is invested in different market conditions every month, thus it gives a better return.

5 benefits of Systematic Investment Plans (SIP)

A systematic investment plan (SIP) is a means to build an investment portfolio with a small sip investment in mutual funds at regular intervals. Many investors choose this route to enter the financial markets and benefit from combination returns the best way. There are several benefits to investing in SIP. Here’s a look at what they are:

1. Disciplined Saving: For any successful investment, discipline is the essence. By investing through *SIP, you commit to saving regularly, and each investment takes you a step closer to reaching your financial objectives.

2. Convenience: Investing via SIP is a hassle-free method. You can instruct your bank to facilitate auto-debits from your account. You can also visit the website of the mutual fund you are interested in and click on the link for the SIP registration link or tab. You can visit the mutual fund advisor or mutual fund branch.

3. Rupee cost averaging: If you choose to invest a set amount of money each month via SIP, you will see that more units or stocks are purchased when the price of the investment goes down. This brings down the average value of buying financial assets over time and will give a much higher return in the long run.

4. Benefits of compounding: To generate wealth, the secret is to start investing early and regularly. A small sum of cash invested via SIP on a monthly basis will grow into a considerably large sum. Through the power of compounding, your interest earns interest, allowing you to fetch a substantial amount of wealth.

5. No need to time the market: Knowing when the right time is to invest within the market can create a big dilemma. it’s hard to predict when the market will be at its peak or low point. investment through SIP keeps you from timing the market. while SIP is not free from the market risk, you needn’t worry about the market movements.

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