Once you understand how a Systematic Investment Plan works, the next logical question is: Why is it a popular choice among investors? Understanding the key SIP advantages can assist you in deciding if this approach fits your financial objectives.
Top Benefits of SIP You Should Know
There are a number of SIP advantages that make this a very attractive method of investment, especially for those who are just starting out on their financial journey or working toward long-term goals.
1. Builds a Consistent Investing Habit
One of the most valuable SIP benefits is the routine it builds. You don’t need to worry each month about whether and how much to invest. Your instalment is processed automatically on a set date. You can be consistent without having to make constant decisions.
2. Allows You to Start Small
“You don’t need to have a lot to begin with. Depending on the terms of the scheme, SIPs can be started with as low as ₹100 a month, making it suitable for investors from different income backgrounds. Alternatively, if you have a step-up SIP option, you may also consider increasing your amount gradually as your income grows.
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3. Rupee Cost Averaging Facilitator
Since your fixed SIP amount buys units at whatever the NAV is on each instalment date, you obviously end up buying more units when prices are low and fewer when prices are high. It can help smooth your purchase price over time, one of the more practical sip benefits for investors who don’t want to worry about timing the market.
4. Provides More Time for Compounding to Work
Earlier SIP instalments are invested for a longer period than later ones. Any return generated can be reinvested, as well as participate in future growth. That’s why SIPs are generally associated with long-term goals – the longer the goal, the more time for your investment to potentially grow.
5. Lowers the stress of market timing
A SIP enables you to invest periodically across all market conditions rather than trying to guess the short term market movements. It removes the emotional toll of trying to find the “right” entry point.
6. Connecting Investments to Goals
SIPs can also be based on specific objectives- retirement, a child’s education, a future house or wealth creation in general. This forces you to focus on a purpose, rather than wasting time aimlessly.
7. Makes It Easier To Keep Investing
You set up an auto-debit mandate and your instalments are automatically deducted. This makes it easier to stay the course on your investment journey over months and years.
Important Caveats to Keep in Mind
The benefits of sip mentioned above are good but it is to be remembered that the sip returns are market linked and not fixed or guaranteed. The value of your investment can go down as well as up and rupee cost averaging does not eliminate risk or guaranty a profit, especially in a falling market.
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Find the Complete Guide
For a more in-depth explanation of these benefits, types of SIP, and how to choose the right scheme, check out our complete SIP Guide.
See potential impact
Want to see how these benefits add up in real numbers? Use the SIP Calculator to get an illustrative projection based on your own SIP amount and tenure.
Final Thoughts
SIP investing has the advantages of structure, discipline and accessibility. Brought to you by Tata Mutual Fund, this guide is to help you understand why so many investors choose SIP as part of their long term financial planning.
All investments in Mutual Funds are subject to market risk. Carefully read all scheme related documents.
