A systematic Investment Plan or SIP is a method of investing money in mutual funds—the other way to invest in a lump sum or one-time payment.
Investing in mutual funds with the help of a systematic investment plan or SIP has become very popular. To know why it is such an effective method to invest in mutual funds, read on!
Rupee cost averaging
For the investors, braving the fluctuations of the markets can be a difficult task. When the market conditions get choppy, it can get tricky for new investors to gauge their next investment move. Moreover, by investing in a SIP, even first-time investors can benefit from the principle of Rupee Cost Averaging – the investment technique of regularly investing across the market. This helps your investment stay protected from the volatility of the market, even without your intervention.
Power of compounding
If you select the growth option at the time of starting your SIP, the returns that your investment generates would then be added again to your investment amount. This results in the compounding effect, which could generate great returns in the long run.
So, if you have long term financial goals, starting a SIP in any scheme of your choice and selecting the growth option can prove rewarding.
They generate wealth from income
SIPs are also deemed an effective investment tool because you can invest a part of your income and make the most of the power of compounding. Compounding refers to the process of earning on the interest accumulated by reinvesting the interest earned along with the investment amount. For an investment made early on in your career, as is it the case for most time investors, this can lead to exponential growth over the years and help you to generate substantial wealth.
Easy to invest
SIP can be started for an amount as low as INR 500. Investing your money in the SIP is a hassle-free process as the amount will be deducted monthly from your bank account automatically once your one-time mandate is approved.
There are various benefits of SIP for the investor, and it is the perfect method to accumulate wealth by regular investing over time.
Help you save taxes
There is a wide range of instruments in the market that can help you to save taxes every year, but require you to settle for quite modern returns. An easy resolution to this dilemma can be achieved by investing in specific types of SIPs that are more geared towards both the tax saving as well as higher income generation.