Power of compounding – A SIP helps build wealth by investing a fixed amount of money regularly over time.So, an SIP enables you to lower the average cost of your investment and reduces the risks. This means that you buy less units when the markets are up. However, when you invest in mutual funds using SIP, the market risks get reduced as the units of the mutual fund scheme are bought periodically. Averaging out risks – Mutual funds invest in securities that have a degree of risk.It reduces the financial risks associated with lump sum investments.
This makes SIP affordable to classes of investors. Small amount – You can start with an amount that is as low as Rs.Here are some of the reasons why people invest in mutual funds using SIP. So, the advantage of investing regularly over time makes SIP a better option. If you invest when the markets have already peaked, the chances of getting more returns will be low. With the lump sum investment, you need to invest at a particular cycle. This leads to a lower average purchase price that translates to higher returns in the long run. So, investors get to buy more units when the markets are low and lesser units are bought when the markets are flying high. SIP is investing a fixed sum at regular intervals. You need to wait for the market to fall if you want higher returns in the long run. However, when you invest a lump sum, you cannot invest at market peaks. For investing in the market, you don’t need to time your SIP. SIPs can be chosen by all investors regardless of their age while lump sum might be beneficial only to those who have a significant amount of money to invest. While both have advantages and disadvantages, SIP has a number of benefits for retail investors over lump sum. Lump sum and SIP are two ways of investing in mutual funds. With SIP, you get the benefits of rupee cost averaging. This gets added to your investment account/folio. With every SIP, units of the mutual funds are purchased at the prevailing Net Asset Value (NAV). The amount that is debited will be invested in the mutual fund scheme that you have selected. SIPs come with flexibility as the amount is auto-debited from your bank account.
The compounding of returns helps accumulate wealth for financial goals. This could be weekly, monthly, or quarterly.īy investing in mutual funds in a systematic and staggered way, helps instil a sense of financial discipline in the long run. Investors can invest a fixed sum at regular intervals.
You can start investing online directly on the mutual fund website or through your broker/adviser. SIPs are hassle-free and straightforward. Systematic Investment Plan (SIP) is an easy way of investing in mutual funds.
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