Systematic investment Plan is a method of investment over mutual funds. Investing can be done either with a bigger amount of money or else onetime payment.
In SIP you can invest a certain fixed amount in a mutual fund as per your choice monthly. You don’t need to worry about the rest as the money will get debited from your account every month.
Why SIP is important?
Finance discipline- Many people are focused on maximizing profit being the main point of SIP strategy. Although the main focus point of SIP investing should be infusing financial discipline into the lives of the investors. A handful of investors have the habit of start mode and stop mode on investing. They tend to start very well and focused but then immediately stop investing once the market has tanked. Thus, Systematic Investment Plan puts an end to all of this hassle. Once you start SIP, a fixed amount will automatically be debited into your account. From this, we can say that SIP helps an investor to invest systematically and periodically without any market hindrance.
Compounding power
Compounding is all about gaining interest from reinvesting the earned interest. Said to be one of the eight wonder of the world, which turns a small amount into a big one. It is always recommended to start investing with a little amount rather than waiting for the time you finish saving a big amount. One can start with a monthly SIP to create wealth through the power of compounding over the years.
Cost average
Many investors have the fear of the market entry time and exit time thus as a result they fail to invest in the market. You can never predict market conditions from beforehand whether the prices will rise or the market will fall, for such conditions you can average your purchase cost over a certain period of time. SIP minimizes the risk and takes out the average of your investment cost.
Flexibility to investment plan
SIP helps you to invest as per your requirements. You can choose the SIP scheme based on the time you want to take to reach your goal. As for example if your finance goal is just a year away then you start with ultra short term debt fund or else if you are planning to start retirement plan then you can start SIP planning in equity funds thus investing in middle and small companies.
Small start big dreams
One of the best features of SIP is letting you furnish your dreams from the beginning of your career. You don’t always need a surplus amount to start investing. SIP acts as building blocks to your investment journey and lets you reach your goal.
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What are the advantages of SIP?
Some advantages of systematic investment plan are discussed below:
1. Stopping it anytime
No fine will be charged to you if you decide to stop the SIP plan. You can simply stop investing on SIP by coming out of the SIP plan. This feature is a very helpful and good one if compared to Recurring Deposits as they charge fine once you discontinue it. After you stop investing on SIP you can return back to your regular amount or continue to invest in mutual fund.
2. The benefit to skip payment
Suppose for any personal reasons you don’t enough balance left in your account for SIP investment then you can skip the payment for that particular month and move on to pay for the next month hassle free. No kind of fine will be charged against you.
3. Starting a new SIP
You can always plan to start investing on new SIP plan once you start earning more money or saving more. You can invest your money either on the same existing mutual fund or on another different mutual fund. So, in this way you can create wealth from the extra money you earn or save.
4. Disciplined savings
It is a real fact that once you start earning more money you intend to spend more money. Saving money is really a common problem faced by all. For such problems, it is always advised to first save and then spend. If you keep the date of SIP investment just after your income gets credited in your account then you are investing before spending. With this you can follow a disciplined way of savings money.
5. Investing small amount
With all the available SIP plans you can start investing with a small amount such as say from Rs 500. There are many investment plans under SIP starting from Rs 500. You don’t need to save a big amount or earn more to start investing. You can very well take the benefit of India’s market growth and invest in mutual funds.
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6. No worries about market timing
It is true that you should not invest in an inflated market but with the SIP plan you can invest on mutual funds without worrying about timing your investment. When markets are high, SIP then purchases less number of market units of a mutual fund but when the market is low it purchases more amount of units. Thus, initially you don’t need to purchase a unit of mutual fund with a high price. In another words this is also called rupee cost average.
7. Benefit from compounding
Investing in an SIP plan gives you monthly returns. These earned returns get added to your investment account and so again an investment. So over time and time the returns are under compounding effect which ensures you wealth growth.
8. Keeping emotions aside
You should always keep your emotions aside before you start investing. Seeing the ups and downs of market and the market fluctuations you may feel to make impulsive purchases and sales. But this isn’t good; it is always good to invest for a long period of time. Thus, your investment becomes disciplined investment and investing on SIP prevents you from short term volatility.
9. Past performances
SIP tends to protect you against much harm such as short term risk, short term volatility, impulsive reactions and extra spending. Investors who once started investing on SIP, 10 years ago are now receiving great rewards. For example, if you have started a SIP of Rs 3000 monthly back in 1999 and after 15 years of spending a total of Rs 5.4 Lakh, your investment would be of worth Rs 35 Lakh.
10. Convenience
Other than investing in any other investment plan it is recommended to invest on SIP for the beginners. You can start it either through offline or online or any banking and financial service providers.
