Are you an investor looking to invest in mutual funds through SIP mode of investment? Systematic investment plan or SIP has several benefits that make it an attractive tool to invest in mutual funds. In this article, we will understand some of the benefits of SIP mutual funds.
5 reasons why an investor should invest in SIP mutual funds
Here are a few reasons why an investor must consider investing in mutual funds through SIP mode of investment:
- Instils a sense of financial discipline
SIP investments aim to impart investment discipline among investors as it ensures than an investor invests in mutual funds through the market cycle – both during market highs and lows. SIP mode of investments aids investors to save at their ease at periodic intervals and accrue a substantial sum of money in a given period.
- Low minimum investment amount
Another factor that attracts several investors towards SIP mutual fund is the low minimum investment amount needed to invest in mutual funds through SIP mode of investment. An investor can allot as little as Rs 100 per month in their desired mutual fund schemes via SIP instalments. This makes it easier for both small and big investors to invest their savings and earn yields on their mutual fund investments.
- Power of compounding
Another reason why you might consider investing in mutual funds through SIP could be the power of compounding it offers to individuals. Your money tends to compound at a significant rate when you invest for a prolonged period. If you are wondering why that is so, well, the power of compounding is directly proportional to the length of the investment. So, the longer you stay invested in the markets, the higher returns you are likely to earn through the concept of compounding.
- Rupee cost averaging
Rupee cost averaging could be considered as one of the key parameters that distinguish SIP investment from one-time investment or lumpsum investment. As stated above, SIP investment ensures that an individual invests throughout a market cycle, which means that an individual stays invested in both bullish and bearish market phases. As a result, when the markets are down, an individual ends up accumulating higher number of mutual fund units than when the markets are soaring high and vice versa. This helps to average out the net cost against purchasing the units of mutual fund schemes. This concept is known as rupee cost averaging – a concept which is not enjoy lumpsum investors.
- No need to time the markets
You must have heard several investors making a substantial sum of money by investing in markets at the ‘right time’. Often investors attempt to time the markets in attempt to buy mutual fund units when the markets are low and sell them when the markets are high. However, what they fail to realise is that only a handful of investors are able to successfully time the markets. Most investors incur hefty losses in an attempt to time the markets. This is when SIP investments can prove to be a savior for investors. With SIP investments, an investor does not need to time the markets. SIP mode of investment rather focuses on time in the markets rather than timing the markets.