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Investment in mutual funds is a risky job, but you can mitigate the uncertainties through diversification, proper asset allocation, and choosing a moderate or low-risk fund . Apart from this, many individuals also refrain from a mutual fund is because it can be expensive.Mutual fund investment can either be done through lumpsum/ one-time investment or directly using SIP. The latter is often the popular choice among investors as it makes investing cost-effective, and there are the best SIP investment plans available in the market. Let's get to know more about Sip and the reasons why it is beneficial:
What is a Systematic Investment Plan or SIP?
SIP is a fixed amount of money you need to pay every month. Once you activate the SIP, the amount gets automatically debited from your bank account. As an investor, you can start with an amount as low as Rs 500 per month. Gradually, you can increase the investment amount with time. One of the advantages of SIP is you start small, and you reap good returns.
1. You Can Stop the SIP Anytime
You have the flexibility to stop SIP anytime without facing any fine or penalty. There is no lock-in period. Once you have deactivated the account, you can refund the previous amount or even continue to stay invested. Typically, when there is an emergency, SIPs can be useful as you can redeem the amount at your convenience.
2. You Can Skip SIP Payment
If you have a low balance in the bank and you're not able to pay for SIP, you can skip the payment. You will not be charged any fine, unlike it is in recurring deposits for missing the payment.
3. Start A New SIP If You Have Money
There are no regulations on the number of SIPs you hold. If you're able to save more, you have the flexibility to open another SIP. This will help you earn good returns from both accounts. Opening two or more SIPs is totally up to you; however, you need to track it regularly to avoid loss of income.
4. Discipline with your Saving
It helps to build discipline with regular saving habits. An automated deduction of the SIP amount also keeps you stress-free as you do not have to invest each month manually. It is advisable to select a SIP deduction date after you receive the monthly income. This gives you an assurance of saving before spending.
5. Small amount of Investments
SIP strategy lets you start an investment of Rs.500 per month. Even if you're choosing an equity mutual fund, the payment method makes it possible to invest affordably. Once your income increases, you can gradually raise the SIP amount.
6. Effect of Compounding
A systematic investment plan gives you the benefit of the power of compounding. The rupee cost averaging factor ensures that you derive better returns from SIP as against the lumpsum amount. By rupee cost averaging, you get to purchase more units when the market is a slump and fewer units when the market is booming. As a result, you experience a decrease in the cost of the unit in the long run.
7. You Need Not Worry About The Time Of The Market
When you're using the SIP method to invest in mutual funds, you need not time the market. The rupee cost averaging comes into play, thus keeping you unaffected by the fluctuations of marketing booming.
8. You Should Keep Emotions At Bay
There are investors who make an impulsive decision with regards to buying and selling mutual fund units. Hence, when the market is going through ups or downs, you should avoid investing emotionally. SIP is a disciplined approach, which requires you to stay invested in a scheme for a longer time. Impulsive buying or selling should be avoided.
9. Past performance
There are many best sip investment plans offered by fund managers in India. To choose the one, you need to analyse a mutual fund's past performance to reap great benefits. A consistently well-performing mutual fund is always the best choice but do consider your risks and goals while investing.
Conclusion
If you're a young and first-time investor, SIP is ideal for starting your journey in the mutual fund investment market. Because starting small and holding a fund for a longer period are the keys to gaining better returns. In fact, SIPs are safe investment modes to invest in equity markets through mutual funds.
DISCLAIMER
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.
