In the last five years, the number of people investing in stocks has grown exponentially. Direct investing is risky, so most people who trade in the stock market do so through mutual funds. Another trendy and effective way for buyers to build wealth is through a systematic investment plan (SIP). Let’s try to understand why SIP investment is the best way to invest.
Merely saving up money doesn’t help. Investing is just as important. With mutual funds, you can systematically build a corpus over time. Investing in SIPs enables you to build wealth for the long term as the magic of compounding works wonders on the money you invest.
Why SIP is the best way to invest
Let us understand what an SIP is and whether investment in SIP is good or bad. Putting money into mutual funds through SIPs is a pretty straightforward process that saves you time. You can decide how often and how much you want to invest, as well as how long you want to keep investing. You can avoid the hassle of manual investing by setting up a systematic investment plan (SIP) and having the investment amount regularly debited from your bank account every month. It follows that SIPs are an excellent choice for people who want to invest in mutual funds, but don’t have a bulk amount to invest.
1. SIP brings more discipline to your investments and savings
Many are worried that they are not able to save at all after meeting their monthly expenses. With SIPs, you can invest regularly every month, and your money will automatically go into savings without you realizing it. Slowly but surely, it teaches you how to manage your money and helps you make gains in the long term.
2. Start with small amounts
A majority of people believe that trading in the markets requires large sums of of money. In fact, you can start with small amounts of money. You can start investing as little as Rs. 500 a month through SIPs. This means that even people who have just started earning can start investing to reach their long-term goals.
You can also partake in the stock market’s rise, even if you don’t have much money saved or earned. You can build up a large amount of money over time by investing in SIP plans.
3. Don’t stress about timing the market
When you buy through SIP, you don’t have to worry when the market will go up or down. With SIP, you put away a little money every month. The price will go up and down every month. The price you pay will be somewhere in the middle if you think long term. If you are investing through SIP, you won’t pay too much for the mutual fund units. This method is known as rupee cost averaging.
4. Grab the benefit of compounding
If you are confused whether SIP is a good investment or not, remember that the great thing about SIP is that the market doesn’t really affect how much money you make in the end. Compounding is what makes the investors rich, and it happens when they keep their money in the fund for a long time and keep re-investing their gains.
5. Stop anytime you want
You don’t have to put money into the SIP account every month for a set amount of time. You can stop the investment or skip the SIP for a few months if you don’t have money to invest. SIPs give you a lot of flexibility. So, if you start an SIP for Rs. 1,000 in any mutual fund plan, you don’t have to keep putting that much money every month. If your savings grow, you can increase the SIP amount or even start a new one in the same mutual fund plan. This is why SIP investment is the best way to invest.
6. Skip if funds are tight
Consider this advantage when you think if an investment in SIP is good or bad. There are times when you might not have enough money in your bank account to make an SIP purchase. If you skip a month with an SIP, you don’t have to pay any fees or fines. If you decide to end your SIP plan at any time, most of them do not charge you any fees or fines. All you have to do is to instruct the fund house to stop or put your SIPs on hold. This is an advantage that more traditional investing options like fixed deposits do not provide.
7. Have more money? Start another SIP
You can start a new SIP plan in a different mutual fund that invests in a different sector or industry if you get a salary hike or your disposable income goes up. This way, you can put your extra cash to work and also get a good return on it. Investing in the Indian stock market through mutual funds through SIP plans is one of the easiest ways of investing. Small wonder many are choosing to invest through SIP plans and one of the main reasons why SIP investment is the best way to invest.
8. Do not mix investments and emotions
The stock market is volatile. It’s easy for buyers to make hasty decisions when they get carried away by their ambitious goals. Markets don’t necessarily work the way investors want it to, and they keep making mistakes that cost them money. SIP means making regular payments. Here, people keep investing their money no matter how the market is performing, so it saves the owner from the dangers of emotional buying.
9. Past performance
Fund managers in India offer investors a wide range of SIP investment plans. To pick the right one, you should look at how well a mutual fund has done in the past. A mutual fund that regularly does well is always the best choice, but when you buy, you should think about the risks and your goals. All the same, always remember that mutual fund investments are subject to market risk. The SIP is a great way to start investing in mutual funds if you are young and have never invested before.
Thus, starting small and keeping a fund for a longer time are substantial ways to enhance profits. In fact, the main advantage of SIP is that it provides a safe way to invest in the stock market through mutual funds.
Key takeaways
Systematic Investment Plans (SIPs) facilitate indirect investment in stocks in an organized way by setting up regular automatic payments. SIP schemes come with a low ticket size and you can invest as low as Rs. 500. Furthermore, it lets you track your investments easily and tax on capital gains is reasonable. With the SIP, investors stand to gain from the stock market’s upside, the primary reason why SIP investment is the best way to invest.
You can also play around with an online SIP tool to get a better idea of how your investment will grow over time. This tool lets you weigh the advantages of putting money into a mutual fund every month through SIP compared to investing in bulk. It helps investors, small and big, who like to make investments in a planned way.
