Reasons Why SIP Investment is the Best Way to Invest
- 27 Jun 2024
- 5 mins read
- By: BlinkX Research Team
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Over the previous five years, the number of investors in the stock market has grown at an exponential rate. Mutual funds are the preferred investment vehicle for the majority of stock market investors. Furthermore, systematic investment plans (SIPs) have become a very popular and effective method among investors.
Let us define a SIP and explain why it is an excellent technique to invest in mutual funds.
8 Reasons Why SIP is Best Way to Invest
If you're searching for a good approach to start investing, a Systematic Investment Plan, or SIP, in mutual funds is one of the finest options.
The following 8 reasons will help you better comprehend SIPs:
1. Small Investment Amount:
Most mutual fund programmes allow you to contribute as little as Rs.500 each month through SIPs. This investment quantity is far smaller than the most popular investing choices, such as FDs and ETFs. This ensures that the vast majority of people who have recently begun earning may invest to achieve their long-term goals.
2. Adjust the SIP Amount the Way You Want:
SIPs offer a significant degree of flexibility. For example, if you begin a Rs. 1,000 SIP in a mutual fund plan of your choosing, there is no need to continue investing Rs. 1,000 each month. If your contributions rise in the future, you can alter the SIP amount or start a new SIP in the same mutual fund scheme.
3. Reduces the Average Cost of Mutual Fund Units:
SIPs help reduce the average cost of buying mutual fund units by adjusting the fund's Net Asset Value (NAV) with market fluctuations. Investing a fixed amount through SIPs makes the average cost of acquiring units cheaper in the long run compared to making a lump sum investment during high markets.
4. Power of Compounding:
If you choose the growth option when you start your SIP, the returns from your investment are added back to your original investment amount. This leads to a compounding effect, which yields much larger long-term returns.
5. No Emotional Investing:
The market's ups and downs might make it difficult for an investor to remain objective. The market's volatility frequently pushes consumers to make emotional investing decisions that, invariably fail to produce the desired returns. However, SIPs safeguard investors from making such emotional errors because fund managers handle the money.
6. Stop or Skip the SIP:
There is no requirement to deposit the SIP investment every month for a certain timeframe. If you don't have enough money to invest, you can miss the SIP for a few months or even discontinue it completely.
7. Makes You a Disciplined Investor:
Most people begin investing but struggle to keep it continuing for an extended term. SIPs are designed to bring discipline to your investing path. An amount that you choose is automatically invested in the plan of your choosing, removing the need for you to make the monthly contributions yourself.
8. Complete Transparency:
To protect investors' interests, AMFI and SEBI have implemented several severe standards that all mutual fund schemes and AMCs must adhere to. This has made the mutual fund sector transparent and safe for individuals who are starting their financial journey.
Conclusion
Now that you've learned about the numerous benefits of SIP investing, it's time to get started. Delaying your choice to begin investing can make it more difficult to attain your financial goals. However, you should understand your investing profile, including your risk tolerance, investment horizon, and financial goals, so that you may choose mutual fund schemes that best meet your needs.
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- 8 Reasons Why SIP is Best Way to Invest