Several investors shy from investing in the markets due to the high volatility faced by them. In a hope to avoid these fluctuations, these investors end up investing in investment options that are less prone to market fluctuations. However, one fails to realise that market fluctuations are what helps to earn significant returns in the first place. So, what should one do to continue benefitting from market volatility without being exposed to hefty losses? Enter Systematic Investment Plan or SIP. If you are wondering what is SIP, it is simply an investment tool that helps to invest in mutual funds in a disciplined and systematic way. This article focusses on several benefits of investing via SIP mode of investment
Benefits of SIP investment
Following are some of the benefits of putting your money into an SIP:
- Remedy to market volatility
SIPs help to beat market fluctuations. This permits investors to profit from any future reductions that might happen in the investment journey. This also provides for a better margin of safety.
- Power of compounding
When you invest in SIP you enjoy the benefits of the power of compounding. Compounding is an investment concept wherein the returns earned on your investments are re-invested to earn further returns. Thus, compounding helps to grow your money at an exponential rate.
- Rupee cost averaging
SIP ensures that an investor regularly invests in mutual funds across all market cycles. This means that an investor ends up investing in both bullish and bearish market cycles. As a result, an investor is able to purchase additional units when the markets are at the bottom than when the markets are at the top and vice versa. This helps to average out the total cost spent towards purchasing mutual fund units. This concept is popularly termed as rupee cost averaging.
- Disciplined investing
As SIP investments are systematic and automated in nature, they inculcate a sense of investment discipline among investors which is very important in the investment world. Once an investor has provided standing instruction to their banks, a specified amount would get deducted at predetermined periodicity on a regular basis.
- No need to time the market
Several investors shy away from the concept of investing in mutual funds as they are unsure when to enter the markets. Often investors are advised to invest in mutual funds when the markets are low and exit or sell their units when the markets are high, so as to earn decent profits. However, this concept is easier said than done as it is almost impossible to determine when the markets are at their peak. As a result, several investors end up incurring huge losses in an attempt to time the markets which is often frowned upon by experts. So, what is an alternative to this? SIP investment. As SIPs invest across different market cycles, it removes the need to time the markets.
- Ease of investing
Thanks to advanced technology and internet marketing, you can now invest in mutual funds online through SIP from the comfort of your home or literally anywhere in the world with just a few clicks.
- Light on the pockets
Unlike lumpsum mode of investment, you do not have to empty your pockets (literally) to invest in mutual funds. With SIP, you can invest in mutual funds as low as Rs 100 per month, making it quite affordable even for the economically backward sections of the society.
Hoping these advantages of SIP are enough to convince you to start your investment journey in SIP mutual funds. Remember the golden rule of investment – the earlier you invest, the more you’ll receive the benefits of it. Happy investing!