Benefit of SIP

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SIP has a lot of benefits

1] Habit of saving & Disciplined Investing-

The power of saving underlines the essence of making money work if only invested at an early age. The longer one delays in investing, the greater the financial burden to meet desired goals. Saving a small sum of money regularly at an early age makes money work with significant impact on wealth accumulation.

It’s the key to investing success. Regular investment makes you disciplined in your savings and also leads to wealth accumulation. Systematic investing is a time-tested discipline that makes it easy to invest automatically. Investing regularly in small amounts can often lead to better results than investing in a lump sum.

2] Reduces overall Risk-

All one has to do is to invest a fixed pre decided amount of money on a regular basis for a long period of time. Since the amount invested is constant one invests when the markets are high as well as when the markets are low. Although SIP does not guarantee profit, it can go a long way in minimizing the effects of investing in volatile markets. This helps the investor to not worry about market volatility and keep on investing while accumulating the wealth.

3] Average purchase cost is less:-

SIPs help you to average your purchase cost and maximize returns. When you invest regularly over a period irrespective of the market conditions, you would get more units when the market is low and less units when the market is high. This averages out the purchase cost of your mutual fund units.

4] No Timing the market

Investors are always in a dilemma that if it is a right time to invest or not. No one can predict which may the market will move or if the market has achieved its peak or low point. Investing through SIP resolves this dilemma as it is a periodic investment which occurs across market cycles. SIP is not free from the market volatility and the fund value may go down, but it frees you from the worry of market movements.

5] Achieve your Goals

SIP is a great tool through which you can achieve your financial goals. Say, you want to buy a car in 5 years which costs Rs 7.5 lakhs. Accounting for 6% inflation in 5 years it will cost approx. 10.04 lakhs.

If you invest in a mutual fund which gives you 12% yearly returns for 5 years, you will need to invest approx. Rs. 5.7 lakhs to achieve your goal.

However, if you go through SIP route, you need to invest only Rs. 12,593 Rs. per month for 5 years in the same fund where you expect to get 12% return.

This shows that through SIP you can achieve your goal by investing a relatively small amount monthly.

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