5 Good Reasons to Invest In Mutual Fund through SIPs
Systematic Investment Plans are considered as one of the most low risk investment options available today. With SIPs, you can invest a fixed amount of money at regular intervals in mutual funds across several equity and debt options. SIPs not only bring a sense of financial discipline into your life, but also provide several benefits which make them one of the most highly recommended investment options today.
Following mentioned are five good reasons to invest in mutual fund through SIPs:
- Market Timing is not relevant: When it comes to making investment in mutual funds, one of the biggest challenges is to understand the market and the right time to make the investment. This scenario arises when you are looking to invest a lump sum amount in mutual fund investments. With SIP, you will invest fixed amount of money at regular intervals (say monthly) irrespective of the market conditions.
A long term SIP plan helps you to average the purchase cost which makes market fluctuations irrelevant. So, when the market is high, you will be buying less number of units and when the market is low you will buy more units. As a result, the purchase price of your mutual fund unit is balanced, preventing market fluctuations from affecting the returns.
- Enjoy diversification with SIP Mutual Funds: Even though SIPs require you to invest a small amount of money each month, they give you the benefit of diversifying your mutual fund investments. Diversification of funds means investing your hard earned money across different mutual funds. Since share prices of companies tend to vary over time, you can invest your money in multiple shares through SIPs. When the funds of one company are not faring well, another might be doing really well.
- Professional Management: One big advantage with SIP plans or any mutual fund is that a fund manager manages your investments (regular investments, not direct). These experts carry out extensive research of the economy and the industry to ensure that your investments are well calculated. They will also track the market regularly to help you diversify your funds in a manner that ensures minimum risk and maximum possible returns. Nowadays, even you can calculate and compare the returns of different mutual fund schemes using an SIP Calculator.
- Regulation and security: You are guaranteed transparency of your investments as Systematic Investment Plans are well regulated by the AMFI and the SEBI. This makes it more convenient and a lot safer for you to invest in an SIP mutual fund.
- Long term planning: Any investment that you make is usually aimed at some long-term objective such as saving for your child’s education, purchasing a house, investing in property etc. that usually require large investments up-front.
The best SIP Plans allow you to build a large corpus with a long-term investment. You are able to make small investments over a large span of time, which will give you huge benefits at the end of the term.
With SIP, you do not have to worry about a lump sum one-time investment. SIP plans allow you to have an easier investment plan without putting any strain on your monthly budget which is why it is ideal for small investors who cannot directly invest in the equity market.
Also with SIP there is no lock in period for most of your investments. So, you can withdraw your money whenever you need to in case of any emergency or urgent requirement of funds.
- Low Minimum Investment Requirements: SIP mutual funds are the ideal option for first time investors and young investors as well. The minimum investment requirement in SIP is extremely low which usually ranges between Rs.500 – Rs.1,000. This ensures that you can invest and possess a disciplined financial plan without affecting your monthly budget.
- Enjoy the advantage of compounding: The interest rate that you earn on your SIP depends upon the type of investment or the asset class. This can vary from 12% to 20% depending upon where you invest – in endowment policies, debt funds, balanced funds, small and mid-cap funds or large cap funds.
However, even with an asset class that earns a low interest rate, you can still earn returns on your investments thanks to the power of compounding. When you invest a principal amount, you earn some interest. In case of compounding, you earn interest upon the interest that you’ve earned. For instance, if you invest Rs.10,000 with a 10% ROI, you earn an interest of Rs.1,000. In the following cycle, the interest on your SIP plan is calculated on the Principal amount + the interest, i.e. Rs.11,000.
Therefore, even though 5% or 10% may seem like a small ROI at first glance, you can make a significant corpus with this. Since the principal amount increases at regular intervals and you are looking at a long-term investment, you can grow your wealth significantly with SIP. This is another reason why SIPs are ideal for old investors, young investors, and new investors.
All you need to do is choose mutual funds that are perfectly aligned with your long-term financial goals. Post that, invest your funds through SIP plans to minimize your risk and maximize your returns in a volatile market. SIP is transparent, free from market fluctuations and the most convenient investment option available.