The contributions to monthly SIP investments in India have risen by an impressive 77% from December 2017 to December 2022. While it’s always a good idea to save, it’s an even better idea to make your money work harder for you. This can be done with mutual funds. The good news is that you can start small with SIP (systematic investment plan). But what makes SIP mutual funds score over lump-sum investments in mutual funds? Why are more people opting for systematic investment plans online? Let’s look at some of the probable reasons.
What Makes SIP Investment Better Than One-time Investing?
No need for vigilant market watching: Inexperienced visitors are often unsure of timing the market correctly. They are tentative about entry timing and confused about exit points! If a significantly large amount has been invested all at once, getting the timing right is extremely important because owing to the fear of humungous losses. With SIP mutual funds, such vigilance and experience are not required because the money is spread out over an extended period. Only a fraction of the invested amount remains exposed to market volatility! This makes it a convenient and stress-free option, especially for those starting fresh in the money market.
SIP offers the advantage of rupee cost averaging: When you are investing in a systemic investment plan online you are investing across a span of multiple market cycles. When the markets fall you will be purchasing more. Similarly, you will be investing in fewer units when the markets start looking up. This way, your per-unit cost of units bought will reduce. This phenomenon is called rupee cost averaging.
Good option for budding investors: If you have just begun earning, starting with SIP mutual funds would be the most convenient stepping stone for entering the stock markets. You can make small beginnings with as low as Rs 500 per month and enjoy exposure to the equity markets. Once you get a hang and develop a healthy risk appetite based on sound knowledge, venturing into riskier schemes is always a possibility. Systematic plans can prove to be highly effective training grounds for those who wish to learn.
Returns are better: With SIP investment, the returns are typically better than with lump-sum investments, especially when the investment tenure is over 5 years. Performance consistency is better with systematic plans.
Inculcates investment discipline: When you sign up for a systematic investment plan online, you are required to invest a fixed sum of money on a particular date, every month. This is either done through PDCs or by filling in the NACH form for an automatic electronic debit of the stipulated amount from your account to your SIP fund. Missing an installment is never an option since it can jeopardize the long-term compounding of gains! This regimented investment cycle establishes a disciplined approach for young investors. They learn to set aside a sum for their future relatively early on in their lives!
SIPs are suitable only for those with stable and regular income cycles, however. The installment amount should be small to start with. Scaling up later as incomes grow, is best.