Systematic Investment Plans (SIPs) help you discipline your investing. Its nature as a financial instrument encourages the habit of regular saving and investing.
This is because SIPs require you to invest a little bit of money at regular intervals of time. Investing for the long term is a skill that is developed through practice. SIPs are a way to set aside a fixed amount at intervals and can continue for a few months or even years. They also help in averaging out the cost of investing and guarding yourself against extreme volatility in the market.
Benefits of SIP investment:
1. Investing in a disciplined way
It is common for people to complain about not being able to save money. The SIP route allows you to invest regularly every month, which automatically results in savings before you spend your money. It brings financial discipline gradually, as well as helping to realize returns later.
2. Get started with small amounts
As little as 500 can be invested every month with SIP. Even if your earnings are not high or your savings are low, you can still participate in the growth of the Indian stock market by investing in SIP plans in mutual funds.
3. Rupee cost averaging
When the net asset value (NAV) of a fund is low, rupee cost averaging encourages you to purchase more units, and less units when the NAV is high. Over the investment period, it averages out your purchasing costs. With a SIP, you don't have to worry about timing the market.
4. Don’t worry About Timing The Market
By investing in SIP plans, you do not have to worry about timing the market. During high stock prices, you'll receive fewer shares for the same amount and vice versa. Ultimately, you will have a well-balanced portfolio thanks to averaging.
5. Make Compounding Work For You
In a SIP, the monthly returns will be reinvested in your investment amount until maturity. Therefore, compounding helps you grow your investment amount exponentially over time.