A systematic investment plan or SIP is a plan that helps you invest in mutual funds on a regular basis. You can choose to invest weekly, monthly or even quarterly – the most popular choice being monthly.
There are multiple reasons why SIPs are the best way to grow your money especially when you have a goal to plan – e.g. your child’s education. SIPs can be bought easily and you can start with a very low amount – Rs. 500 per month. In this blog, we will talk about the ‘Big 5 advantages’ that SIPs offer to you as a parent.
But before that, let’s understand what an SIP is
What Is SIP?
An SIP or systematic investment plan is an investment mode through which an investor can create a regular mechanism of investment for themselves. Let’s take the example of investor X. Investor X wishes to invest Rs. 10,000 every month in a mutual fund.
In this case, investor X can create an SIP for a fund they want to invest in and the money will be deducted every month automatically (the deduction can be weekly, monthly or even quarterly, depending on the investor’s choice).
Think of it as a recurring deposit, with better returns.
Now that we know what an SIP is, let’s get to know why investing via SIP is the best choice you can make to enlarge your corpus.
5 Reasons Why You Should Invest via SIP
These are the 5 main reasons why you should invest via systematic investment plan to reach your financial goals
1. Suitable for Long – Term Investment
Any financial advisor will tell you that if you want to invest long-term, SIP is the way to go.
The reason is simple, regular investing and automatic deductions keep investors motivated to stay invested and reach their investment goals quicker.
During the 2008 financial recession, many people withdrew money from mutual funds. However, the one’s that remained invested via SIP, attained a huge profit once the markets rose.
Long-term investing makes sure that even if the market is down at the moment, once the markets rise, the investor will make profits.
SIPs are good tools to plan for a future goal – to buy a 4-wheeler or to pay for college tuition fees maybe 10-15 years from now.
When you determine the amount required to achieve your goal, you will know how much you should invest and for how long it will take to reach your goal. This will help in planning effectively.
Having financial goals is very important to create a financially secured future. One must have a defined idea about what financial goal they want to reach by the age 30, 40, 50 and so on.
3. Effect of Compounding
Compounding is one of the biggest advantages of an SIP.
Overtime your investments grow, because you start earning returns not on your principal amount, but on the interest that keeps getting added to it.
Let’s take an example. Suppose you invest Rs.1,000 in a mutual fund which gives you a yearly return of 10% p.a. Your amount becomes 1,100. at the end of the first year. At the end of the second year, the rate of return is 11%, this time the returns will be calculated on Rs. 1,100 and not the principal amount, which is, Rs. 1,000.
This ensures growth of your corpus and one of the reasons why experts advice you to not withdraw your investments when the market is down.
4. Curated by Experts
With the increasing number of fund types like equity, debt, mixed, gold-based etc. there is a wide variety to choose from based on your risk appetite and preferred investment duration.
This has led to customized offerings based on individual needs, supervised by experts in the SIP domain. All you need is to specify your goal and timeline and you are provided with the best possible funds that can meet your future goals.
SIPs have become popular over the past few years, because of the ease of investing and the flexibility provided in terms of the amount of money that can be invested. You can stay invested as long as you want, although average returns have been higher when invested in the long-term.
Research also shows that the returns offered by SIPs are more than recurring deposits in banks, in the long term.
5. Automates Your Investment Experience
SIPs automate your investment experience, which makes you a regular investor. It is easy convenient and because of the online surge, today, it is super easy to invest via SIP. If you choose the lumpsum method, you will have to manually invest an amount and there maybe times where you can miss an installment.
With automated installments and a streamlined process, investing via SIP has now become an extremely popular method, to reach long-term goals like saving up for your child’s education.
The process of investing via SIP maybe long, but, if you want to see adequate results, this investment mode is your go-to option. Investing via SIP has many other benefits as well, because it diversifies risk, gives you substantial returns and simplifies the process of investing.
Start today with SIPs and move towards the goal you have planned for your child!