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    Benefits of Investing in SIP – Advantages of SIP

    Apr 23, 2024
    5 min | Views 245

    Systematic investment plans (SIPs) have become the deep-seated financial support of the common man, helping them reach their financial goals. This disciplined investment method can allow investors to build a larger wealth corpus in the long run without sacrificing their personal expenses.

    It’s time we acknowledge a SIP’s importance in our financial journey, and that’s why we focused this blog post on the benefits of investing in an SIP to educate and encourage investors to invest in a SIP.

    Benefits of investing in a SIP

    1. Monetary benefits of a SIP

    1. Rupee cost averaging

      Timing the market has always tortured investors. Its unpredictable nature had investors second-guess their mutual fund investment motives and, to some extent, overwhelmed their investment decisions. But not anymore with SIPs! Investing in a SIP can completely remove this fear.

      SIPs promote rupee cost averaging, in which your cost of buying the mutual fund scheme units averages out over time. Let’s assume you buy 10 units of a mutual fund scheme for Rs. 1000. The next month sees the market facing unfavorable conditions that result in buying 8 units of the same scheme for Rs. 1000. However, the third month will see a decrease in the NAV, which implies you will buy 12 units for the same amount. This action cancels out the loss you incurred in the second month with the profit you gain in the third month.

      A SIP investment strategizes this rupee cost-averaging benefit for investors without having to time the market.

    2. The power of compounding

      Compounding means earning interest on the returns gained from your investments. The power of compounding shouldn’t be underestimated while investing, as its effect can snowball into creating a larger corpus over time. Regular SIP investments and the interest earned in the long run can maximize capital gains.

    2. Investing benefits of an SIP

    1. Flexible amount and investment tenure

      Investing a large amount at once has troubled investors, but SIPs have solved this riddance by facilitating smaller payments as low as Rs. 500. In this way, SIPs support your financial situation by promoting flexibility with the amount and time. This flexibility ensures that you can stop the SIP investments at any time or change the amount according to your financial situation.

      For example, investing Rs. 5000 at once will daunt the investor, but a Rs. 1000 monthly investment for 5 months will not stress his wallet. Thus, he can financially secure himself and also has spare money for personal needs.

    2. Disciplined investment routine

      The SIP mandate allows automatic deductions at regular intervals from your account. This establishes a strategic process of setting aside a decided amount regularly, resulting in investors planning their expense budget in advance and investing in mutual funds simultaneously. This financial discipline routine makes investors diligent in their investment journey.

    3. Different types of SIP investments

      Investors can freely choose different SIP types to fulfill their goals. These customized SIPs further simplify the process of choosing the right scheme for an SIP that helps support investors’ aims. The following are the different types of SIP investments designed specifically for investors’ convenience.

      • Regular SIP: Investors can choose this simplest plan to invest a fixed amount at regular intervals during the tenure of the investment.

      • Top-up SIP: Investors can increase their SIP investment amount periodically.

      • Multiple SIPs: Investors can invest in multiple SIP schemes within the same fund house.

      • Flexible SIP: Investors can increase or decrease the investment amount flexibly as per their cash flow.

      • Perpetual SIP: Investors can choose this SIP plan if they want no tenure-specific investment. SIP contributions will continue unless investors voluntarily choose to stop the plan.

      • Trigger SIP: Trigger SIP allows investors to start, stop, or end SIP dates depending on market conditions through speculative analysis. This type of SIP is recommended for experienced investors with sound knowledge about market dynamics.

        Also Read – What is SIP?

    Conclusion

    Start your SIP plans now and aim to reap these benefits. Investing in an SIP can act as a catalyst for long-term wealth creation. SIPs offer different investment options to investors, which makes the process easier and more convenient. So, start strategizing your financial goals to make the most of your SIP plans.

    Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

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