What is SIP investment and its benefits?

What is SIP?

Mutual Funds India offer a variety of choices to investors, in terms of the kind of fund to invest in, such as debt or equity etc. They also offer a choice in terms of how the investor wants to invest - SIP or Lumpsum. While both are popular methods of undertaking Mutual Fund investments, an investor can choose one or both methods based on their need and convenience. In case of the SIP investment, the investor has to make periodic investments, based on the chosen frequency, such as daily, monthly, quarterly or yearly. They have to pump in money on the chosen SIP date, for the investment tenure and allow the amount to grow into a substantial corpus over a period of time. 

How it works?

SIP mutual funds brings discipline in investing by making sure the investor invests small but regular amounts in the chosen scheme, over time. On choosing a frequency and date, the money automatically gets debited from the investor’s bank account. But, in case, there is insufficient balance, on the given date, the bank will notify the investor. If this continues for 3 times, the SIP gets discontinued. Hence, one needs to be careful with their SIP date and make sure that they have the required balance, for it to pass. This keeps investors aware, disciplined and interested in mutual fund investing.

Benefits of SIP Investment

There are several benefits of investing in SIP, some of them being:

Power of Compounding: SIP investment is a money multiplying strategy used in mutual funds. Under this, the return which is earned on the principal amount, is reinvested so as to earn profit on profits. This strategy allows the return to also earn return leading to a growth in the corpus value.

For example, if you invest an amount of Rs 15,000 per month in a chosen SIP mutual Fund, over a period of 10 years, your estimated SIP corpus can amount to close to Rs 35 lakhs assuming the annual rate of return to be 12%. Through the power of compounding, SIP investment helps to grow the wealth of the investor, if he/she remains patient in the process.

Convenience: An investor gets the major advantage of convenient investing with SIP. One can choose the date of investment, the amount as well as the frequency. Additionally, it can be started off with an amount as small as Rs 500. It can also be increased annually with an increase in income of the investor through SIP Top-Up.

Rupee Cost Averaging: In case of SIP Investment, one will buy more number of units during a market slump and less during a market boom. As a result of this, the cost per unit is reduced during the long run, thus helping to balance out the volatile equity market.

Emergency: Your SIP corpus can become your potential emergency fund, if maintained with discipline and patience. One can discontinue the SIP mutual fund anytime and also redeem the corpus, if required, given that the investment does not have a lock-in period.

In this read, we tried to understand the various facets of SIP Investment as offered by mutual funds India, from the perspective of an investor. It is a popular method of investing your savings and growing it with time for completing financial goals in the future. One can use timely advice from a financial advisor in order to take an informed decision in this area.

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