The best way to achieve your financial goals is to plan well and start early. Systematic Investment Plan or the SIP option of investing in mutual funds helps you do that. The option involves investing a fixed amount every month, week, quarter, half-yearly, or yearly so that you can build wealth over a longer period and achieve your goals. You can decide the amount to invest via SIP to reach a target corpus based on your financial position and by using a SIP calculator. You have the option to go for a fixed period SIP or a perpetual SIP which continues till you decide to stop it.
This option of investing in SIP has several benefits over the lumpsum method of investing.
Benefits Offered by SIP
Power of Compounding
When you invest regularly via SIP your returns get reinvested and over time this boosts your total returns. This is the power of compounding that allows you to maximise your returns by investing for a longer period. And the earlier you start, the better are the returns and the chances of you achieving your financial goals.
Low Initial Investment
What makes SIP a powerful option is that you can go for it with an amount as low as Rs 500 or 1000. This means you do not have to wait to save a bigger amount to invest in mutual funds. You even have the option of increasing the SIP contribution as and when your income or savings increase.
Benefits of Averaging
Regular investments in SIP means you are buying the mutual fund units at different time periods when the markets are in different phases of their cycle. When the markets are low you get more mutual funds units with the same amount while you get fewer units when the markets are on an uptrend and prices are high. This means you get the units of the mutual fund at different prices depending on market situations and your overall cost of acquisition gets averaged.
Option to Discontinue Anytime
If for any reason you are unable to continue your SIP contribution, you can easily discontinue it. Once you inform the mutual fund about your decision to discontinue the SIP plan you can either opt to get back your amount or let it continue to be invested. You also have the option to discontinue your SIP for some period of time.
Since you have committed to invest a specific amount in your SIP you tend to become more financially disciplined. You tend to monitor and handle your expenses in such a way that the committed amount for SIP is kept aside. Investment through Sip also prevents you from getting affected by the short-term movements in the markets and taking impulsive decisions.
SIP investments are quite simple once you complete the basic formalities. The first step in your investment journey is to complete the KYC for mutual funds. This requires you to submit documents related to your identity and address proof besides the details of your bank accounts and photographs. You even have the option of completing the KYC for mutual funds without visiting the asset management company’s office, as online or e-KYC is possible.