Many anticipate that mutual fund investment involves high risk and substantial initial investment. Hence, they opt to invest in traditional instruments that involve less risk and generate lower returns. However, you must know that mutual funds are available in multiple variants, and you can choose one suitable to your risk appetite and investment goals. Investing in mutual funds through SIP investment does not require a massive initial investment. You can begin your investment journey with a small amount and gradually build your portfolio.
Let’s learn more about mutual fund investments’ benefits through SIPs.
What is SIP Investment?
A SIP stands for Systematic Investment Plan, an investment plan mutual funds offer. In this plan, you can gradually invest fixed amounts in the best mutual funds for SIP at regular intervals. Similar to a recurring deposit account, you can begin by investing as low as Rs 500 per month. You can give your bank a debit mandate or standing instruction to debit a particular amount from your account each month and invest it in SIP. The frequency of SIP payment may vary from weekly and monthly to quarterly, half-yearly, and yearly, depending upon the mutual fund scheme you choose. Monthly SIPs are the most popular, allowing you to invest small amounts each month without investing a substantial amount at once.
Key Benefits of SIP Investments in Mutual Funds
Confused about investing in mutual funds through SIP? Here are the key benefits you should know:
- Does Not Involve a Substantial Initial Investment
You can start investing in a mutual fund through SIPs, even with investing budget constraints. The investment amount can be as low as Rs 500 each month. Therefore, it is an affordable way to meet your investment goals without spending a lump sum amount at once. Moreover, as your financial health improves, you can conveniently increase your regular SIP contributions.
- Maximise Benefits With Compounding
The most significant benefit of SIP is the power of compounding. Compounding occurs when the returns generated by an investment start to generate their own returns. As you keep reinvesting your gains via SIP investment, your investment base grows, leading to accelerated growth over the long term.
- Rupee Cost Averaging
When you invest in an equity mutual fund through SIP, you must invest a particular amount at regular intervals across various market levels without timing the market. That means you no longer need to worry about market fluctuations and anticipate the right time to invest. As a result, you can purchase more units when the market is low and fewer units when it is high.
SIPs let you average out the price of the best mutual funds for SIP over time, thereby reducing the impact of market fluctuations on investments. When the market is extremely volatile, you can maximise returns with rupee cost averaging and earn higher returns during the market recovery phase.
- Flexible Investment at Your Convenience
You can begin SIP investment in mutual funds with just Rs 500 each month. Moreover, you can choose a SIP date when you can conveniently make the payment. For instance, if you are a salaried employee, you can select a date around your salary day as you will have sufficient balance in your account for SIP payment. You may also choose a weekly, quarterly, or half-yearly SIP investment plan, depending on the mutual fund scheme you select.
- Possible Higher Returns
Fund managers professionally manage mutual fund plans with their experience, expertise, and proven track record. They continuously work hard to generate maximum returns from the SIP investments with their team of research analysts. By regularly investing a small SIP amount, you can gain maximum returns over time by leveraging their professional management.
Investing in carefully selected SIP equity mutual funds generates substantial returns higher than traditional investment avenues like FDs and PPFs. As a result, you can achieve your financial goals sooner. Furthermore, you may claim a tax deduction of up to Rs 1.5 Lakh under Section 80C by investing in ELSS and tax-saving SIPs.
- Freedom to Skip or Stop Anytime
The best mutual funds for SIP do not charge penalties if you stop the investment at any point. Simply log into your Demat account and choose to opt out of the plan. This type of advantage might not be available in any other traditional investment plan, such as FD or RD, with lock-in periods.
Sometimes, for any reason, if you feel that the funds are tight and you don’t have enough funds to make a SIP payment, you can skip the payment for a month without attracting any fines or charges. As the finances grow, you may come back later to restart your SIP payments. On the contrary, if you feel you have more disposable income and you are not putting your funds to good use, you can increase the SIP investment amount or start another SIP as convenient to your finances.
Conclusion
With several benefits, SIP investment is a rewarding way to generate returns, beat inflation, and create a corpus to achieve investment and financial goals. However, before choosing a scheme, ensure it aligns with your risk appetite, investment horizon, and financial goals. Since it carries risk due to market fluctuations, follow financial discipline and review your portfolio regularly.
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