Systematic Investment Plans, commonly known as SIP have gained popularity in the past few years and for all the good reasons. Contrary to most investors’ belief, SIPs offer more than just wealth creation to individuals. SIPs also help to generate higher returns when invested for a long tenure. Following are some of the top reasons why you should consider investing in mutual funds via SIP to generate these high returns:
- Inculcates financial discipline among investors
One of the main reasons why SIP have gained immense popularity among retail investors is that SIP investment aims to impart the habit of investment discipline among investors. Under SIP mode of investment, a pre-determined sum of money is allocated periodically in the desired mutual fund schemes for a given period. So, if the periodicity of your investments is monthly, then each month a specified amount will automatically get debited from your bank account towards the desired mutual funds. This reduces the chances of missing any SIP installment. It also removes the factor of market sentiments affecting investor decision.
- Benefits of compounding
Have you ever wondered how a small, insignificant sum of money turns into a substantial corpus over a period of time. Well, it’s the magic of compounding. The power of compounding, also claimed as the eighth wonder of the world reinvests the returns earned on mutual funds. Basically, your money works to make further money. Rather than waiting and accumulating a significant amount to invest in mutual funds, use this opportunity of time to invest early, even though it means allotting small, insignificant amount.
- Helps to average out the cost of mutual fund units
As you invest through different market cycles when you invest in mutual funds via SIP, this means that you invest in both bearish and bullish markets. As SIP investment ensure regular investing despite market conditions, you invest a predetermined sum of money in both bearish and bullish markets. So, when the markets take a dip, an investor ends up buying more mutual fund units and vice versa. This averages out the cost of mutual fund units. This investment concept is commonly referred to as rupee cost averaging.
- No need to time the market
Unlike lumpsum investment, SIP investment does not require an investor to time the market. As experts say rather than timing the markets, try to make efforts to put time in the markets. This is because it is not easy to time the markets. Investing in SIP eliminates the market.
- Helps to put emotions at bay
Investments in the market require an investor to not get influenced by their emotions or market sentiment. Often investors are tempted to quit the markets at the slightest hints of volatility. However, this is a frowned upon concept. Experts advise investors to stay invested despite market volatility. Hence, investing in mutual funds via SIP help you to keep your emotions at bay.
Keep in mind that the earlier you start investing, the more you are likely to attain higher returns on your mutual fund investments. Also, you can use an SIP calculator to understand the future value of your mutual fund investments. Estimating the future corpus of your investmentsenables one to plan their finances in a better way. Happy investing!
Krishna Murthy is the senior publisher at Finance XOD. He is not only the senior publisher but also the owner of Tricky Finance. Krishna Murthy was one of the brilliant students during his college days. He completed his education in MBA (Master of Business Administration), and he is currently managing the all workload for sharing the best banking information over the internet. The main purpose of starting Tricky Finance is to provide all the precious information related to businesses and the banks to his readers.