Mutual funds are popular investment vehicles to attain financial stability & achieve goals for the future. It is also one investment vehicle that is most popular these days as more and more people are shifting from traditional investments to mutual funds. Let us check out a few key reasons to invest in mutual funds through SIP (Systematic investment plans).
What is SIP?
Advantages of SIP
- Easy to access- Systematic investment plan is the easiest way to invest in equity markets indirectly. It doesn’t require a deep understanding of the market to start and empowers users with stability in investments through diversification.
- Liquidity- Systematic investment into mutual funds through SIPs provides high liquidity and the funds can be accessed any time required. Unlike traditional investments like FD where you must invest a higher amount to get a high rate of returns and that too after a certain maturity period.
- Benefit of averaging- SIPs into mutual funds provide you with the cost of averaging benefit as it keeps adding more units during a fall or in the market making your initial investment cost cheaper and thus helping you with significant returns over extended periods of time.
- Inflation beating returns- Traditional investment assets don’t let you hedge against rising inflation. Mutual funds do help you with higher returns over a prolonged period of time beating all traditional investments as well as inflation. Thus, making you financially stable.
- Tax benefits- As the government focuses on more financial inclusion of individuals, it encourages investors to participate in India’s growth story and encourage investments into capital markets. Hence, the government has created a special category of mutual funds in which you get tax benefits by investing in ELSS (Equity Linked Savings Scheme) mutual funds. (Equity-linked savings scheme).
- Goal planning- Mutual funds can be the most suitable vehicle for achieving your long-term goals. As mutual funds give returns higher than any traditional investment asset class, it provides an edge over all the other asset classes so that investors can plan their retirement, home purchasing, children’s education, etc.
- Diversification- SIPs into mutual funds help you diversify your portfolio into different asset classes in one go. The various categories of mutual funds such as equity, multi-asset, hybrid, etc aids in investing into various categories at once without bothering about over or under exposure into these assets.
Summing up
Systematic investment planning provides an edge over lumpsum investment as it helps in diversifying your money into dissimilar categories at different points of time thus leading to maximum utilisation of all the above benefits. It is the most suitable for beginner investors who want to start investing for wealth creation but don’t have the resources and information to invest directly in equity markets. SIPs help them invest in equity markets with as low as Rs.100 through SIP’s.
What are the benefits of SIP in mutual fund?
Think of SIP in mutual funds like planting seeds regularly. It’s a smart move because it lets you invest small amounts at regular intervals. This approach smoothens out the investment journey, like taking steps rather than big leaps. It also helps you benefit from something called rupee cost averaging-buying more units when prices are low and fewer when they’re high.
Why is SIP investment the best way to invest?
Picture SIP as a disciplined investor’s secret weapon. It fosters a habit of regular investing without the hassle of timing the market. It’s like building wealth drop-by-drop, making investing a habit rather than a one-time event.
What is unique about SIP?
The uniqueness of SIP lies in its convenience and consistency. It’s like a slow and steady racehorse in the investment world. While it might not give sudden, massive returns, it’s reliable and reduces the impact of market volatility through its disciplined approach.
Which type of SIP gives the highest return?
There isn’t a one-size-fits-all here. Different SIPs cater to various risk appetites, goals, and durations. Equity-oriented SIPs, often tied to stocks, can potentially give higher returns but come with higher volatility. Balanced or hybrid SIPs, blending stocks and bonds, might balance risk and returns more conservatively. It’s like choosing between a thrilling roller-coaster ride or a scenic train journey – both have their charms!
