Why SIPs Are the Smartest Way to Start Investing in Mutual Funds
Why SIPs Are the Best Way to Start Investing in Mutual Funds?
A Systematic Investment Plan is a strategic investment approach to investing in mutual funds, making an ideal choice for both novice and seasoned investors. The beauty of an SIP lies in its simplicity and flexibility to start with a very small amount, as low as ₹100 per month.
There are several advantages of investing in a mutual fund scheme, so let us discuss some of the key reasons to invest in mutual fund SIP. Read along for further insights.
Reasons Why SIPs Are the Best Ways to Invest in Mutual Fund
SIPs provide a disciplined way of investing in mutual funds that eliminate the need to time the markets. It helps to build wealth through the power of compounding and reduces the cost of your investments. Here are the key reasons to invest in SIP:
1. Inculcates a Healthy Savings Habit
Young professionals usually get carried away with unnecessary spending and struggle to save, especially in the initial stage of their careers. Therefore, starting a systematic investment plan inculcates a healthy savings habit and helps you accumulate a sizable corpus over time.
2. Begin with a Small Amount
With an SIP, you can start your investment journey with a very small amount, as low as ₹100 per month. This flexibility can be beneficial for young professionals, as the disposable income at an early stage is low. Moreover, you can also increase your SIP slowly and gradually by opting for the step-up option.
Step-up SIPs allow you to increase your investment amount at a fixed interval by a certain percentage. For example, your ₹5000 SIP investment can increase by 10% every year or by ₹1000 every year.
3. Removes the Hassle of Timing the Market
Market timing refers to the suitable timing perfect for entry or exit to maximise returns. Therefore, an investor looks forward to making an entry when markets are low and selling off when markets are high. This is not easy in practice as the market is unpredictable, and peaks and troughs are clear only in hindsight after the opportunity has passed.
SIP removes the hindrance and the need to time the market. Irrespective of the market condition, a fixed amount is invested at regular intervals. Therefore, more units are purchased when markets are low, and fewer units are bought when markets are at their highs. This phenomenon balances out the effect of short-term market fluctuations; this phenomenon is known as Rupee Cost Averaging.
4. Ideal for Capitalising on Compounding Benefits
You can leverage the power of compounding by investing in a Systematic Investment Plan. As it helps you to reinvest the return to generate more profits over time, this compounding effect multiplies your investments at an exponential rate. This snowball effect results in the significant growth of your corpus.
5. Can Skip or Discontinue Anytime
You can discontinue or pause your SIP at any particular point in time. Most mutual fund schemes do not carry any penalty if you stop the systematic investment. Thus, you can consider skipping your SIP for one or two instalments if you are tight on funds. This is one of the unique benefits of a SIP Mutual Fund, which is not available in traditional investments like recurring deposits.
6. Transparency
The Association of Mutual Funds in India (AMFI) and the Securities and Exchange Board of India (SEBI) have numerous stringent measures on each and every mutual fund scheme, which are strictly adhered to by AMCs. Regulations are applicable for the type of assets the funds can invest in, fund structure, KYC requirements and more.
These rules aim to protect the interests of investors and maintain complete transparency. This makes mutual fund SIPs one of the safest forms of investment, especially for investors who are starting their investment journey.
7. Convenience of Online Tracking
The majority of Asset Management Companies in India allow their investors to invest and monitor their investments online. There are also many third-party mobile apps and brokerage sites where you can track your investments. Therefore, you can enjoy the convenience of tracking and monitoring all your investments right from the comfort of your home.
8. Avoids Emotional Investing
Capital markets are highly volatile, with frequent price fluctuations, and many investors end up making impulsive decisions. This often leads to emotional investment calls which often fail to provide desired results. However, a mutual fund SIP prevents investors from making such emotional or impulsive decisions.
Conclusion
Unlike traditional investments, a mutual fund SIP offers numerous unique advantages. This includes its low investment amount, rupee cost averaging, compounding benefits, flexibility of skipping or stopping and more. However, be sure to understand your financial status, risk tolerance, goals, etc., before making any significant investments.
By making regular investments, taking advantage of market fluctuations, and staying disciplined, mutual fund SIPs can help you build a sizable corpus over time.
Disclaimer: This article is a promotional feature and does not have journalistic/editorial involvement of Hindustan Times. Hindustan Times does not endorse/subscribe to the content(s) of the article/advertisement and/or view(s) expressed herein. Hindustan Times shall not in any manner, be responsible and/or liable in any manner whatsoever for all that is stated in the article and/or also with regard to the view(s), opinion(s), announcement(s), declaration(s), affirmation(s) etc., stated/featured in the same. The article does not constitute financial advice.
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