What Is SIP and What Are Its Benefits

In a systematic investment plan, or SIP, fixed amounts of your funds are regularly invested in a mutual fund based on your preferences. You can achieve this by linking your mutual fund account to your bank account, from which preset amounts are deducted. However, you should understand the meaning of SIPs and their advantages before making an investment decision.

Why Opt for a SIP Investment?

If you are a new investor, you may be presented with different investment options, such as stocks, regular mutual funds, bonds, and commodities. However, why should you choose to invest in a Systematic Investment Plan (SIP)? One of the key advantages of SIPs is that they allow you to allocate funds according to your specific financial targets. Compared to a traditional mutual fund, where you must invest an upfront lump sum amount, SIPs provide more flexibility by letting you periodically invest smaller amounts based on your economic capacity. Even better, it’s possible to begin investing with just Rs.500 per period!

Advantages of SIP

In order to make informed decisions about your future actions, you should be well aware of the advantages you get with a SIP investment. You may be interested to read below about the benefits of a SIP investment:

• Simple Plans – With a Simple Investment Plan (SIP), you can invest as little as Rs. 500 each time over a period of time and watch your money grow. It is convenient to monitor, and it doesn’t require much market expertise.
• Flexible Investment – SIP investments provide a great advantage of convenience and flexibility. There is no fixed tenure to worry about, and the amounts you choose to invest are adjustable. However, remember that having a long-term strategy in place is an essential part of creating wealth.
• Return Potential – SIPs in equity mutual funds give you market-linked returns, which can be higher than those of fixed deposits or recurring deposits over the long term. Returns are not guaranteed and can be negative.
• Compounding – Gains that stay invested can themselves grow over time. You may invest a small amount, and staying invested for a long time gives compounding more time to work.
• SIPs Are Flexible – A SIP is a way of investing a fixed amount regularly in a mutual fund; it is not a fund in itself. In most open-ended funds you can stop a SIP or redeem units when you need to. But units of an equity fund can fall in value, so a SIP in an equity fund is not suitable for emergency money: keep an emergency fund in safer options you can access quickly.

Concluding Words

Learn how to invest in SIPs at a broker like EquityBox. You can also open a demat account and explore other fruitful ways to invest your funds so that you may see returns in the future.