SIP in mutual funds allows individuals to invest a fixed amount of money at regular intervals. The most common SIP is a monthly plan, wherein a fixed amount is invested in a mutual fund of your choice on a specific date each month. An important thing to be understood is that the NAV of mutual fund units changes every day, but the SIP amount is fixed. Therefore, every systematic investment plan SIP transaction will buy a different number of units. This is the feature through which SIPs have various benefits, as discussed in subsequent paragraphs.
1. Rupee Cost Averaging
One of the most important advantages of SIPs is that of rupee cost averaging, which works to reduce the impact of market volatility on your investments. By committing a certain amount of money periodically, you purchase more units when the market prices are low and fewer units when the prices are high. This naturally ensures that over time the average cost incurred on the investments tends to level out regardless of market fluctuations.
2. The Power of Compounding
It makes your investment returns generate additional returns over time through compounding. That is, the portfolio grows as the returns are reinvested to yield additional profits.
A SIP taken up early in life would be a good compounding effort. Even the smallest of contributions could blossom into enormous amounts if invested for an extended period.
3. Convenience
SIPs are designed in such a manner that even an ordinary investor with little to no experience in financial markets can invest in the market easily by signing up for a SIP. After subscribing for an SIP, your investments get automatically done on the date you want every month without your manual intervention.
This automation, apart from saving time, ensures that you invest regularly, thus removing the temptation to delay or skip contributions given uncertainties in the market or one’s biased thinking. For those who are salaried or on a regular cash inflow basis, SIPs blend well with any monthly financial planning and encourage a hassle-free approach to wealth building.
4. Flexibility
SIPs are highly flexible, being based on the financial ability of an individual investor. Unlike traditional investments that often become time-consuming and require heavy investment at one go, SIPs allow you to begin with small amounts, as low as Rs 500 per month.
As your financial condition improves, you can increase your investments or choose more SIPs in other schemes. Moreover, SIPs can also be changed, put on hold, or completely stopped without major penalties, thus allowing investors control over their investments. This flexibility makes it ideal for someone at any point in his or her financial life.
5. Cost-Effectiveness
SIPs allow people to build their investment portfolios gradually without the requirement making it very friendly to those who want to invest in systematic ways but cannot afford to keep big money for an initial investment.
By the disciplined investment of small, regular amounts, SIPs ease out the financial burden for investors, thereby enabling them to balance out other costs also while still going in for long-term wealth creation. This cost-effective nature also makes SIPs particularly attractive to young professionals and first-time investors.
6. Diversification
SIP mutual Fund investment inherently constitutes diversification since a mutual fund allocates investments across a variety of asset classes, sectors, and geographies.
This diversification of investments reduces the risk associated with individual performances of either stocks or assets. For instance, if one particular sector does not perform, then the gains of some other could level it out, which comes out to be an equilibrated portfolio. Such SIPs enable the investors to take advantage of diversification benefits without even bothering to individually research and handle multiple investments on their own.
7. Professional Management
SIPs offer benefits in the form of a professionally managed investment for you. Fund managers, supported by research teams, will strategically control the portfolio to ensure maximum returns and risk consideration. The professionals analyse prevailing market trends, spot growth opportunities, and make appropriate changes to the fund’s holdings. This way, your investments are best positioned to consistently perform well over time.
Conclusion
Investing in online SIP mutual fund is a great investment vehicle for creating wealth at any point in time. They have all the benefits of rupee cost averaging, compounding, and professional management with the convenience, flexibility, and cost-effectiveness suitable for a wide range of investors. Be it a newcomer to the investor’s rank or having decades of rich experience with investments, you can simply rely on SIPs to achieve financial goals with less risk and effort.
