Reasons Why You Should Start SIP

Systematic Investment Plans or SIPs have a way of giving you a lot more back than what you originally invested - whether you are investing in a sound fund like HDFC SIP or Axis SIP or some new entrant.

But even as the world of modern-day investors, especially the millennials, are directing their money this this mode of investment, there are many who are yet to follow their lead.

This article is for the latters to become the formers.

Investment Plan

Here are the reasons why you should start a Systematic Investment Plan.

1. SIPs are very cost-effective on the pocket –

You do not need a huge amount of money to begin investing in a SIP, one can start investing in with as low as Rs.1,000 every month, in fact in my case the amount is as little as Rs.500 on the basis of the type of the fund.

The amount is pretty low, isn’t it? The amount is what you maybe spend on a movie ticket or monthly metro card filling, right? It’s a lot easier to invest in an amount as low as Rs.1,000 and the ideal way to do it is through Systematic Investment Plans than spending it on leisure activities.

So, when you get the paycheck, keep the amount that you wish to save, the expenses you need to attend to, and the amount you wish to invest, separate..

2. They give you Flexibility –

With SIPs, you can select your amount of investment, the number of months you wish to make the investment for, the frequency in which you will make the investments, and lastly the date on which you would want your account to be credited. And unlike the other forms of mutual funds investments, SIP even gives you the offer to make cancellation mid-way.

3. SIPs help embed an investment discipline –

With Systematic Investment Plans, the investments happen on a regular basis, no matter what the market condition is hinting at.

With the SIPs set on an autopilot mode, you cannot just ensure that your investment decision is based on greed and fear but it also helps you follow the habit of making investments in a way that you approach your financial goals with utmost discipline. Along with all of this, SIPs come with the ease of not timing the markets.

4. SIPs enable averaging out the investment costs –

hen you invest in Mutual funds, you make investment directly in markets, and it is a known belief that the markets are a highly volatile place for investing. But, when you invest in SIPs, you get the benefit of averaging out the cost of investment, as you buy greater units when the NAV fund is low and buy lesser units when the net asset value is higher - the concept known as Rupee cost averaging. It is Rupee cost averaging that makes it a good mode of investment for it lowers your direct exposure from the fluctuation of market.

5. Systematic Investment Plans help you grow your wealth through the powerful effect of compounding –

Do you remember the compound interest concept that you learned in school?. When you invest in SIPs, you cannot just earn the interest on the amount of principal but also on the amount of interest that has been earned. That is, you earn interest on the interest!  Longer you stay invested in the SIP, the greater it multiplies to and the greater are the returns that you get from SIP. Meaning, the ,longer you stay, the more your money gets the opportunity to then multiply at high rates.

6. SIPs are a mode to help reach goals, systematically –

Now that you have seen what the regularly invested sums of mutual funds can do to your investment with the power of compounding, the next wise thing to do is to use that information to fix a goal, do a SIP return estimation using SIP Calculator, and start investing in this mode of mutual fund to attain your goal.ur goal and then help plan it all systematically.

In addition to it all, SIPs with their low investment amount help you work on other things without posing as a pocket burner.

7. The SIP variants offer seasoned investors higher power of investment –

The variants that SIPs come with - Step-up SIPs and Flexi SIPs, give the investors a variety of new ways to invest in. When your income rises, the spending, investment ability, and savings rise alongside. In a situation like this, you can opt for increasing the SIP amount alongside your income under the Step-up SIP mode. Or using Flexi-SIP, one can opt for investing the regular SIP or rise/lower the amount on the basis of your understanding of the market.