Posted by If you’re a beginner looking to invest in the stock market, you might have encountered the term SIP investment. SIP, or Systematic Investment Plan, is a widely used investment strategy in the Mutual Fund (MF) market. It involves investing a fixed amount of money at regular intervals over an extended period. This blog will discuss the benefits of SIPs and why you should invest in them.
What is SIP?
SIP is a popular MF investment method. It is a disciplined approach to investing in which investors invest a fixed amount of money regularly over a long period. The investment amount can be as low as Rs 500 per month, making it an ideal option for beginners or freshers who do not have much money to spare.
SIP investment works on the principle of rupee cost averaging. This means you buy more units when the prices are low and fewer units when the prices are high. The SIP interest rate depends on the type of fund and the market conditions. Over a long period, this reduces the impact of market volatility on your investment and ensures that you get a better return.
The benefits of investing in SIPs
Regarding investing, various options are available such as stocks, bonds, real estate, etc. However, SIP investment in MFs has become popular due to its many benefits. Let’s discuss the benefits of SIP investment:-
Easy on the pocket
One of the biggest advantages of SIP investment is that it is easy on the pocket, and you can start with a small amount of money and increase the amount gradually at your convenience. This makes it an ideal investment option for beginners with little money to spare.
Discipline in investment
Investing through SIPs helps inculcate discipline in the investment process. Since the investment amount is deducted automatically from your account, you don’t have to worry about forgetting to invest. This ensures that you regularly invest, regardless of the market situation.
Power of compounding
The benefits of compounding are one of the biggest advantages of investing in SIPs. As you keep investing regularly, your money grows over time. This means you earn interest on your initial investment and the interest earned in the previous periods. This compounding effect can help your money grow substantially over a long period.
Rupee cost averaging
SIP investment also allows you to benefit from rupee cost averaging. This means you buy more units when the prices are low and fewer units when the prices are high. This reduces the impact of market volatility on your investment and ensures you get a better return over a long period.
Diversification
SIP investment allows you to invest in a diversified portfolio of MFs. This means your investment is spread across different sectors and companies, reducing the risk of investing in a single company or sector.
Flexibility in investment
SIP investment offers investment flexibility. You can start or stop the investment at your convenience. You can also increase or decrease the investment amount per your financial situation.
Professional management
Professional fund managers with expertise in the investment field manage the funds. They conduct research, analyse the market, and make investment decisions on behalf of the investors. This ensures that your investment is in safe hands and is managed by experts.
Tax benefits
Investing through SIPs like Equity Linked Savings Scheme (ELSS) mutual funds can help you claim a tax deduction of up to Rs 1.5 lakh under Section 80C of the Income Tax Act, 1961. This is an excellent opportunity for taxpayers to save tax and earn potentially higher returns compared to traditional tax-saving instruments like Fixed Deposits (FDs) and Public Provident Fund (PPF).
High returns
Investing in SIPs can offer high returns over a long period. Historically, equity MFs have generated returns of around 12-15% per annum over a long period. This means you can earn substantial returns if you stay invested for a long period.
Why you should invest in SIPs
If you want to build wealth over time, investing in SIPs can be a great way to achieve your financial goals. Here are some facts that show why you should consider investing in SIPs:
Beat inflation
Inflation is a fact of life and can eat into the value of your savings. Investing in SIPs allows your money to grow at a rate that can keep up with or even exceed the inflation rate. This ensures that your money retains its value over time and can help you achieve your financial goals.
Long-term wealth creation
Investing in SIPs can help you create long-term wealth. Investing regularly over a long period can accumulate substantial wealth to help you achieve your financial goals, like buying a house, funding your children’s education, or saving for retirement.
Diversified portfolio
Investing in SIPs allows you to diversify your portfolio. You can invest in MFs that offer exposure to different sectors and companies. This reduces your risk of loss as your investment is spread across different assets.
Professional management
Professional fund managers with expertise in the investment field manage mutual funds. They conduct research, analyse the market, and make investment decisions on behalf of the investors. This ensures that your investment is in safe hands and is managed by experts.
Flexibility
Investing in SIPs offers investment flexibility. You can start or stop the investment at your convenience. You can also increase or decrease the investment amount per your financial situation. This allows you to invest according to your financial goals and risk appetite.
SIP investment is a popular and effective way of investing in MFs. It offers several benefits, such as ease of pocket, discipline in investment, power of compounding, rupee cost averaging, diversification, flexibility in investment, professional management, tax benefits, and high returns.
Before choosing a SIP plan, it’s important to research and understand the historical SIP interest rate of the fund to make an informed decision. Also, if you’re a beginner who wants to invest your money, SIP investment can be a great way to begin your investment journey. Hence, start investing in SIPs today and make your money work for you.