Systematic investment plan or sip benefits the individual investors in multiple ways. So what is SIP? SIP is a very simple method of putting a fixed sum in a mutual fund scheme periodically. There are a lot of people looking to invest in stocks but don’t know how to pick good shares. This keeps the potential investors away from the stock markets. However, Mutual Funds can make your life easier in this case.Mutual funds have turned out to be the biggest wealth creating avenue for individual investors without worrying about the daily variations in the share prices. Systematic investment plan or SIP allows you to investing your savings regularly and can work wonders over a long period of time. All one had to do is to start with a small amount and your money will work for you over a period of time. Selecting the best mutual funds for SIP involves a proper analysis of your risk profile and income flows and it is advisable to seek the help from a wealth/financial planner to enumerate a list of various funds most suitable for you.
Here are the six key factors which will help you achieve your financial goals using the power of SIPs
SIP helps you define your financial goals
Systematic investment plan orSIP lets you defineyour investment objectives in clear and measurable terms. Before starting a SIP, it is critical to foresee the trend in future expenses and also the flow of savings in order to arrive at the likely amounts needed to be invested. This ensures that you allocate sufficient funds to various mutual funds schemes. Such clarity in long term financial goals brings a much needed vision in front of you as to how exactly your long term financial goals can be met. This is a key benefit of sip in mutual fund. The SIPamount could be as low as Rs 500 per month.
SIPs lets you focus on your risk appetite
An investor has to think about factors like his risk appetite and financial needs before deciding to put his funds in a particular fund. Selecting the best mutual fund does not just mean choosing to invest in the fund which is providing the best returns. If you are a risk-averse person, then it makes sense to think about funds which can outperform over a long term and which have good quality stocks with sound businesses. In this case, you will give more important to safety and stability of returns. Systematic investment plan thus works as a consistent approach to focus on your risk appetite.
SIP works well over a period of time
SIP offers tremendous benefits to investors over a long term as the broad changes in economic cycles and corporate earningstend to be visible in financial markets trends.SIP works at its best when you stay invested over a period of time. For this reason, it is recommended that an investor should not discontinue a SIP when markets are witnessing a volatile time r when there is a downturn around. This brings about a much needed discipline in your investing action.
SIP is very convenient and easySIP is a very simple and convenient way of investing. SIP eliminates the burden of lump-sum investments at one time. You can start an SIP with a frequency of your choice: daily, weekly, monthly, quarterly etc. Moreover, you just need a handful of basic documents to start an SIP online which include a resident proof and an address proof. Along with this, you will need a passport size photograph and a cheque book to provide your bank details. Now, with Aadhar number, the whole process of investing in mutual funds has become very much simplified.With online registration, the KYC or Know Your Customer is swift and completely paperless.
SIP works on power of compounding
Compound interest ensures better long-term benefits compared to one time investment.The key to building wealth is to start investing early and to keep investing regularly. A small amount of money invested regularly via SIP can turn into a large sum over a period of time. This helps in creating a substantial amount of wealth which includes your own contribution, plus returns compounded over the years.
SIP offers benefit ofrupee cost averaging
SIP is excellent in offering the benefit ofrupee cost averaging which eliminates the need to time the market. All you have to do is to invest a fixed pre decided amount of money on a regular basis for a long period of time. Since the amount invested is constant one buys more units when the price is low and fewer units when the price is high which may man a lower average cost.
Local equity markets have been hitting record highs in recent weeks. Assets managed by the Indian mutual fund industry have grown from Rs 23.59 lakh crore in November 2018 to Rs 26.94 lakh crorein November 2019, representing a surge of 14.21%. Total assets under Mutual Fund SIPs accounts stood at 2.94 crore in November 2019. This reflects that the Systematic investment plans or SIPs are here to stay.