5 Reasons Why SIP is the Best Investment Method

Financial discipline is especially important for achieving your financial goals and objectives. One of the best ways to be disciplined in managing and investing your resources is to invest via a Systematic Investment Plan or SIP. Under such a plan, you need to invest a fixed amount of money at regular intervals like weekly, monthly, quarterly, or bi-annually in mutual fund schemes. The amount to be invested is decided based on your financial position and your affordability.

Benefits of Investing via SIP

You can either choose to invest in a mutual fund online via the SIP route or go for a lump sum payment. SIP allows you to save and invest without timing the market. An excellent method of saving, investing, and generating good returns over the long run due to rupee cost averaging and the power of compounding. Here are some major benefits of investing in mutual funds online via the SIP method.

  • Discipline: Since you commit a fixed amount for a deposit in a mutual fund, you plan your finances in such a way that you do not miss your investment. This ensures financial discipline in you.
  • Convenient: When you choose to invest via SIP, the fixed amount you have decided to invest gets deducted from your account automatically at the due date. This relieves you of the pressure of remembering due dates and depositing the funds in the mutual fund manager’s account.
  • Rupee Cost Averaging: The monthly contribution means that you buy mutual fund units at different times at different prices. This evens out the impact of ups and downs in the prices of stocks since you get more units when markets are down and less when they are up. This is called rupee cost averaging.
  • Diversification: An SIP allows you to diversify your investments even with a small amount.
  • Compounding: When you invest in a mutual fund for a longer period, your investment gets compounded thereby boosting the overall return. The earlier you start, the more you benefit from the compounding effect.
  • Enhance SIP Amount: You can start your SIP with very small amounts and also have the option to increase it when your salary increases, or you can spare more funds for investment.

When you invest in mutual funds- online or offline via the SIP route, you are protected from short-term volatility in the markets, emotional and impulsive decisions, and become more disciplined in your approach. One of the best options to invest via SIP is the ELSS or the Equity Linked Savings Scheme which invests largely in equities with some proportion of its funds allocated for debt. You can also invest in debt mutual funds via the SIP route, but since they are less affected by the market trends, the benefits of rupee cost averaging are not much.

So if you are a beginner and do not have much idea about how markets work or wish to inculcate the habit of saving and investing, a SIP option is for you.

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