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10 ADVANTAGES OF SIP INVESTMENT
A systematic investment plan (SIP) is an investment instrument to invest small amounts periodically in mutual funds for a defined time period. The SIP amount can start as low as Rs. 500, and predefined intervals can be on a weekly or monthly or quarterly or half-yearly or yearly basis. Investing in SIP has many advantages, in that top 10 advantages are explained in this blog. In addition, this blog explains the difference between direct and regular SIP, and also Top-up, and normal SIP.
What is SIP?
10 Advantages of SIP?
What is direct vs regular SIP?
What is the difference between SIP and Top-up SIP?
Benefits of Systematic Investment Plans?
Why should invest In SIP?
How to start SIP?
What is SIP– Systematic Investment Plan?
A systematic Investment Plan (SIP) is a method of investing a fixed amount of money in fixed intervals in a mutual fund scheme. SIP investment plan is investing a small amount over time in fixed intervals for a higher return. A Systematic Investment Plan (SIP), helps investors to invest in a disciplined manner. If investors take the SIP option of investments, the investor need not worry about the market dynamics. SIP is a guaranteed return investment option as it is based on the power of compounding and rupee cost averaging.
10 Advantages of SIP?
1. Financial goals:
As SIP investment based on rupee cost averaging, our fund is safe, even in marker downfall time, we can plan and achieve our financial goals.
2. Wealth creation:
As SIP is a method of investing with discipline, over time it helps to create wealth. Also, it helped to develop the habit of disciplined Saving. SIP gives the benefit of starting early for fund creation.
3. Diversification:
In SIP Mutual funds investments, the funds will be diversified to different domains of investments, hence it will be safer if some domain is affected by market movement.
4. Able to invest in large funds:
As in SIP, we can start investing with a minimum of Rs. 500 per month and these funds will go to the large funds by a fund manager, which helps investors to get an opportunity to invest in large funds.
5. No worry about market movements:
In SIP as it can start any time and continue, it will not affect the fund, due to rupee cost averaging: SIP helps investors to escape from the risk of equity fluctuations.
6. Convenience:
Investors can instruct the bank to facilitate auto-debits. An investor can start and stop the SIP whenever feels to do so, other than funds had a lock-in period. SIP investment is easy to monitor, liquidate.
7. Fund managers:
As each SIP fund has a qualified fund manager to manage the asset, investors getting an option of investing and managing the fund without any additional cost of paying to an expert fund manager.
8. Compounding:
In SIP, as investors investing in a systematic manner in mutual funds, they are eligible to get the bonus shares and dividend, which will work as compounding of funds.
9. Easy to understand:
No need to do a deep study about the share market and its movements for investing in SIP. As all the fund management activities are taken care of by fund manages, investors no need to strain in daily finances matters.
10. Better returns: subject to market risks:
The fund can grow exponentially even after the SIP period is completed. After the SIP period, the rate of growth is based on the market movement.
What is direct and regular SIP?
In Direct plan SIP, an investor buys mutual funds directly from the mutual fund company usually from its own website or directly from the office. In Regular plan SIP, investors buy Mutual funds through a broker, adviser, or intermediary. In a regular plan, the intermediary gets the commission from the mutual fund company. Some mutual fund companies charge a small fee on the fund management to recover these commissions paid to brokers.
What is the difference between SIP and Top-up SIP?
Top-up SIP is a type of SIP in which an investor can revise the installment amount at pre-determined intervals by a fixed amount, whereas in normal SIP fixed amount is invested at pre-determined intervals still the completion of the lock-in period.
Benefits of Systematic Investment Plans?
A systematic investment plan is a method to build a portfolio with a small investment amount in regular intervals in mutual funds. Investors choose this method to enter the share markets very easily and benefit in return by compounding. Disciplined Saving habit is the key to a successful investment. In SIP as fund managers take care of the fund, it is very convenient for investors to achieve the financial objectives.
- SIP will have all the benefits similar to mutual fund advantages.
Rupee cost averaging and the Benefits of compounding help investors to create wealth without spending the time to understand the market movements. As in SIP, the process is easy to start and stop and investors can instruct banks to facilitate auto-debits the amount from a bank account, make operations easy for the investors. As SIP can start at any time and easily, investors can start it at younger ages and get the benefit of starting early.
Why Should Invest In SIP
Here investors can see 5 reasons to choose the SIP investment instrument for fund growth than a lump sum investment.
1. Reduces average cost:
When investing through SIP, investors need to pay a fixed sum on a regular basis. Investors can buy more units when the market is down and lesser units when the market is up, using the same amount. Through this mechanism, investors will get the benefit of the price average cost for units.
2. Minimizes risk of Market fluctuations:
When investing through SIP, investors make periodic investments in the equities market, which helps investors to ride through the downs and ups with great ease.
3. Higher wealth creation by compounding, as investing early:
If an investor invested for a longer period, the result of compounding is higher. As an investor is investing for a long period, even with Rs. 500 per month, investors can enjoy the benefit of wealth creation.
4. Helps achieve life goals:
SIP helps to build a corpus amount over a specific period of time by making regular investments. This corpus amount help to achieve financial objectives like buying a home, retirement, children’s education, etc.
5. Diversification & Does not strain daily finances:
SIP provides the benefits of diversification, as it is going to different sectors of funds. The risks, thus, get spread out and do not need to strain daily finances and make the gains from different holdings.
How to start SIP?
To start investing on SIP first we need to decide in which mutual fund we need to invest, how much need to invest, and how long we need to invest. First investors need to understand the advantages of sip over lump sum investment in mutual funds to achieve the financial goals. To know the returns we can use easily available SIP mutual fund calculators available online.
Step by Step process for SIP investment.
Step 1: Select SIP mutual funds with the highest returns and which meet the financial goals.
Step 2: Select a suitable fund house or broker. We will get information` online by reading the reviews.
Step 3: Complete the KYC formalities with necessary documents with fund house or start a Demat and trading account with a broker, so that investors can do it directly.
Step 4: Select the mutual fund in which need to invest from the list of funds options available and select the option SIP.
Step 5: Complete the process by selecting the period, payment intervals, and installment amount.
Step 6: Provide the standing instructions, if needed.
Conclusion:
SIP is the easy method of investing in mutual funds in fixed time intervals. Investing in SIP mode help investors to manage the money and develop the habit of disciplined investments. As the process of starting the SIP is easy, even new investors can start it at an early age. As SIP provides the benefit of the power of compounding and rupee cost averaging, it is the most secure and easy investment option to meet the financial goals.
If you would like to learn more about the share market, we recommend reading the share market investment and trading books.
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