SIPs are an easy way to invest in a mutual fund of your choice. The underlying principle behind SIPs is the principle of compounding. So, if you invest small amounts over a longer duration, you can build a large corpus. SIPs are great for all investors, especially those with long term investment horizon.
Here are the benefits of choosing a SIP:
1. Offers flexibility: There is a lot of flexibility provided to an investor. SIPs can be started or paused based on your convenience. You can also play around with the investment amount depending on your financial situation.
2. Makes you financially disciplined: Vast majority of the investors fail with their investment plans because they don’t save regularly or rely on market forces to make decisions. Unfortunately, sporadic investments can cause more harm than good. SIPs ensure that you invest a certain amount of money, irrespective of the performance of the market.
3. Works in your favour due to rupee cost averaging: With SIPs, you can take advantage of the averaging of the cost of purchasing mutual funds. SIPs also make sure that you end up buying a lesser quantity of mutual funds when the markets are more expensive and go all guns blazing when the markets are cheaper.
4. Doubles up as your emergency fund: If your goal is to build a larger corpus, SIPs fare much better than traditional modes of investment like Fixed Deposits, PPF or Company Deposits, etc. You can also make withdrawals easily during an emergency.
5. Puts an end to speculation: SIPs ensure that you are committed to making an investment irrespective of the market’s performance, which in turn takes away the element of speculation from investment and helps you to perform better.
6. No sum is small for SIP: You can start with just Rs. 500. There is no requirement of committing to a large sum. You can change the investment amount at your convenience too.