ATK
New Delhi [India], October 1: Mutual funds offer a promising avenue for wealth growth, but the unpredictability of financial markets makes it challenging for many investors to begin with a lump sum investment. For many, finding a safe, effective, and disciplined way to grow their wealth is a top priority. Systematic Investment Plans (SIPs) address this need effectively by allowing investors to contribute a fixed amount to a mutual fund scheme at regular intervals.
The popularity of SIPs is evident by the fact that the total amount collected through these investments reached an all-time high of Rs 23,331.75 crore in July 2024. Read on to learn why SIPs are considered the best way to invest in mutual funds.
1. Low entry barriers
You can start investing in an SIP with as little as Rs 500 per month. This flexibility supports financial inclusivity and ensures more and more people can participate in investment opportunities, regardless of their initial capital. The best part is, as their situation improves, it’s possible to increase the contribution amounts.
2. Disciplined savings with minimal effort
Once you initiate an SIP, you can set up standing instructions to automatically debit the specified amount from your bank account on the chosen date. This automation reduces the chances of missing out on an investment due to forgetfulness or other financial commitments. The process is hassle-free and ensures that you continue to save and invest regardless of market conditions .
3. Rupee-cost averaging
Market volatility can be intimidating for investors, but SIPs help mitigate this risk through a concept known as rupee-cost averaging. When markets are down, your fixed SIP amount buys more units, and when markets are up, it buys fewer units. This averaging out of purchase costs over time reduces the impact of short-term market fluctuations and optimises long-term returns.
4. No need to time the market
By investing a fixed amount regularly, you invest across different market cycles, which reduces the risk of making a poor investment decision based on market timing. This strategy is especially beneficial for busy individuals and those who lack the expertise to monitor the markets closely.
5. Gauge future returns with SIP calculators
You can use an SIP calculator to estimate future returns from mutual fund investments. These calculators allow you to input variables like the monthly investment amount, the expected rate of return, and the investment period. The results provide a clear picture of how the investment could grow over time. This knowledge helps in better financial planning and helps set realistic expectations.
6. Goal-based investing
Whether you are saving for your kid’s education, house down payment, or retirement, you can set up SIPs tailored to each of these goals. By aligning your SIP investments with specific financial goals, you can make sure you are systematically working towards achieving them over time. This structured approach helps you track progress and make necessary adjustments as your financial goals evolve.
7. Professional management
When you invest through an SIP, your money is managed by professional fund managers who have expertise in selecting the right stocks or bonds to invest in. These professionals analyse the market, use advanced tools for research, monitor the performance of various sectors, and make informed decisions to boost returns.
8. Customisable investment plans
SIPs allow you to choose the frequency of your investments, i.e., daily, weekly, monthly, or even quarterly, based on your convenience. Moreover, you also have the option to top up your SIP when you get a salary hike or additional source of income. This benefit helps you align your SIP strategy with your changing financial situation.
Conclusion
SIP investments are a versatile, accessible, and effective way to achieve financial goals. They offer the dual benefits of disciplined investing and the potential for long-term wealth creation, all while reducing the risks linked with market volatility. With their low entry barriers, automation, rupee-cost averaging benefits, and professional management, SIPs fulfil the needs of various types of investors.
Start an SIP in mutual funds today and take a step towards financial growth and stability.
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