Why To Invest In Sip- 10 Reasons Why Sip Is The Best Investment

Last Updated: 6 Jul 2022

Planning to invest in mutual funds? Confused about whether you should go the SIP route? Read this post to know ten reasons why Systematic Investment Plan (SIP) in mutual funds is one of the best investment options for every investor.

Top ten reasons for investing in SIPs

If you are looking for ideal ways to begin investing, a Systematic Investment Plan or SIP in mutual funds is one of the best ways to do so.

These ten reasons will help you understand SIPs better:

• Small Investment Amount

  With SIPs, most mutual fund schemes allow you to start investing with as little as Rs. 500 per month. This investment amount is considerably lower than the most popular investment options such as FDs and ETFs. This ensures that a majority of people who have recently started earning can invest to meet their future goals.

• Adjust the SIP Amount the Way You Want

  SIPs are highly flexible. For instance, if you start a Rs. 1,000 SIP in a mutual fund scheme of your choice, there is no necessity to keep on investing Rs. 1,000 every month. If your savings increase in the future, you have the option to adjust the SIP amount or even start a new SIP in the same mutual fund scheme.

• Stop or Skip the SIP

  There is no need to compulsorily deposit the SIP investment every month for a fixed duration. You can skip the SIP for a few months or even stop the investment if you do not have adequate funds to invest.

• Makes You a Disciplined Investor

  Most investors start investing but struggle to keep the investing going for a long period. The very nature of SIPs is that it adds more discipline to your investment journey. An amount fixed by you automatically gets invested in the scheme of your choice, eliminating the need for you to make the monthly investments yourself.

• Timing the Market- What is That?

  It is almost impossible to time the markets consistently and accurately. However, SIPs don’t require you to time the markets in any way. You regularly invest a fixed amount, irrespective of the market conditions. You will get more fund units if the market is down and fewer units if the markets are high.

• Reduces the Average Cost of Mutual Fund Units

  Continuing from the point above, SIPs also help reduce the average cost at which you buy the mutual fund units. The NAV (Net Asset Value) of the fund is lower when the markets are falling and higher when the markets outperform. Hence, in the long run, when you keep investing a fixed amount through SIP, the average cost of purchasing the units tends to be on the lower side compared to making a lump sum investment when the markets are running high.

• Power of Compounding

  If you select the growth option when starting your SIP, the returns that your investment generates are added again to your investment amount. This results in the compounding effect, which generates significantly higher returns in the long run.

• No Emotional Investing

  It can be challenging for an investor not to get swayed by the ups and downs of the market. The market’s volatility often encourages people to make emotional investment decisions that generally fail to deliver expected results. However, the SIPs protect the investors from making such emotional mistakes as the fund managers manage the investments.

• Complete Transparency

  To protect the interest of the investors, AMFI and SEBI have introduced several stringent measures that every mutual fund scheme and AMC have to follow. This has made the mutual fund industry transparent and safe for investors just starting their investment journey

• Online Portfolio Tracking

  Most top AMCs in India now let investors manage their mutual fund investments online. Once you start a SIP, you will receive a user ID and password to access your account anywhere, anytime. You can track your SIP, switch to a different scheme, stop SIP, start a new SIP, and even redeem the units from the comforts of your home.

Conclusion: Ready to start a SIP?

Now that you know plenty of reasons why SIP can be a great investment option, it is time for you to start investing. Delaying your decision to start investing will only make it more difficult for you to achieve your financial objectives. However, ensure that you understand your investment profile, including your risk appetite, investment horizon, and financial objectives, so that you can select mutual fund schemes that best suit your requirements.