Benefits of SIP | Advantages of SIP

Benefits of SIP | Advantages of SIP

SIP (Systematic Investment Plan) in mutual fund scheme is the most popular concept in India. It is a smart and hassle-free financial planning tool, offered by mutual funds to help investors invest at regular intervals over a period of time. The concept of SIP is similar to a recurring deposit. In this post, let us discuss all about Benefits of SIP | Advantages of SIP.

Benefits of SIP | Advantages of SIP

SIP is a disciplined approach to investing small amounts periodically instead of lump sums in a mutual fund. It helps you to accumulate wealth, step by step, for the future by investing a small amount of money periodically. There are various benefits of SIP and in this post, we will discuss top five benefits of SIP.

Benefits of SIP | Advantages of SIP

Following are the top five benefits of SIP.

1. Disciplined Investing

2. Rupee-Cost Averaging

3. Power of Compounding

4. Flexibility

5. Simple and Convenient

Benefits of SIP | Advantages of SIP

Disciplined Investing (Benefits #1)

As the name says, SIP is a systematic investment. Discipline is the key to investing success. It is a disciplined approach to investing small amounts periodically instead of lump sums in a mutual fund. Regular investment of small amount makes you disciplined in your investments and also helps to accumulate wealth in the long term. In a SIP a pre-determined amount of money is directly deducted every month from your bank account and invested in your selected mutual fund. You don’t have to play any role in further investment apart from ensuring availability of the money in your bank account on the date of investment.

Rupee-Cost Averaging (Benefits #2)

With the volatile market, it is difficult to time the market. The market may go down after you invest or it may go up after you sell. It is very hard to predict the market. The SIP is the way to beat this unpredictability of the market. Rupee Cost Averaging is an automatic investment strategy which does not require timing the market. When you invest a fixed amount in a mutual fund at a regular interval over a period of time, you get more units when the market is low and lesser units when the market is high. In this way, you would reduce your average cost per unit over time and there would be fewer chances of loss. This strategy is called 'rupee cost averaging'. This helps you to not worry about market volatility.

Power of Compounding (Benefits #3)

Investment planners always recommend that one must start to invest early in life and to keep investing regularly. The main reason for doing that is the power of compounding. When you start to invest in mutual funds via SIP route early in life and invest for long-term, you take benefits of power of compounding. Compounding means earning a return on returns. Your small sum of money invested regularly in mutual fund through SIP can grow to a large sum. This way, you accumulate a large amount of wealth which includes your own contribution via SIP, plus returns compounded over the years. The longer the compounding period, the higher the returns.

Flexibility (Benefits #4)

SIP is a regular investment and to get the full benefits, you should keep invested for as long as possible. Therefore, it is advisable to continue your SIP investments with a long-term horizon but there is no such compulsion. SIPs do not have a fixed period. You can stop your SIP at any time. Also, you can extend the tenure of it by just requesting the mutual fund company. The investment amount can also be increased or decreased.

Simple and Convenient (Benefits #5)

SIP is always simple and convenient than lump sum investment. There is no need to spare time from your busy schedule to make your investments in mutual funds via SIP route. SIPs come with easy payment options. You can just opt for an Auto Debit from your bank account or give post-dated cheques for your SIP. You don’t have to do anything further apart from ensuring availability of the money in your bank account on the investment date. You can also monitor your investment online or through monthly statements.

Hope this will help you to know all the benefits of SIP and you will be able to invest in mutual funds via SIP route. Benefits of SIP

Also, read: How to start a SIP?

Also, read: What should be the duration of the SIP?

Also, read: How to invest in mutual funds online?

Also, read: All about ELSS | Equity Linked Savings Scheme | Tax saving mutual funds

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Benefits of SIP | Advantages of SIP