4 Reasons SIP is The Best Option For Millennials

SIP or Systematic Investment Plan is a tool offered by mutual funds to help investors make a specific investment at periodic intervals (every month, quarter or year) towards a mutual fund of their choice. Based on the amount invested at these intervals, the investor gets specific mutual funds units at its prevailing NAV (Net Asset Value). Experts often advise it to be a great way for young investors to start their investment journey.But why so. Let's look at four reasons that make SIPs the best tool to invest in mutual funds.

SIPs allow you to start small. You don't have to start earning a high income or accumulate a big amount to begin investing. With as low as Rs 500 per month, you can start a SIP of your choice.

Accumulating a big amount for investment may be challenging for you, especially when you're just starting. However, following a discipline of making small investments through SIPs can help you accumulate your investments steadily but surely.

There are no charges or penalties for stopping or pausing your SIP. This is a great advantage for young investors who may face a temporary financial crunch. The money you've already invested keeps earning compounded returns for you till you stay invested.

SIPs come with a unique benefit of Rupee Cost Averaging (RCA). This means you get lesser units of a fund when the markets reach a peak and accumulate more units when they hit bottom. This averaging of the cost helps you ride the cyclical highs and lows of the equities market.

Picture this- A lump-sum investment of 12,00,000 at 15% CAGR for 10 years will fetch you lesser returns than making a SIP of Rs 2000 per month for 25 years (600000 in total). That's because time is of greater importance (than the amount of investment) for generating compounded returns.While SIP is often touted to be the best option for those looking to start small and start young, it is, in fact, the best way to make your investment goal-based. Whatever age you may be, define your goals, identify the years you need to get there and choose the best SIP option to get started. Make sure you also weigh in your risk appetite while choosing a mutual fund.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.