As you all know, money is one of the major driving factors in all aspects of our lives. And one of the best ways to put the money to good use is to invest. Today, we have an array of financial products in the market ranging from low risk to high risk. And Mutual Fund SIPs are one of those investment options that have become quite popular among investors during the last few years.
However, some investors are still confused about SIPs or Systematic investment plans and the perks they can offer. If you recall your good old childhood days, you would have realised that you might have already been saving via the SIP method by putting small amounts of money in your piggy bank. Even a regular addition of funds to your savings account or salary account is one form of SIP. So, in one way or the other, everyone has employed this concept in our lives.
The same goes with the Mutual Fund SIPs as well, but the process is a bit more disciplined. To help you understand Mutual Fund SIP in a detailed manner, we’ll take you on a tour of how it works followed by the benefits of investing through SIP in this blog.
What is a SIP?
SIP or Systematic Investment Plan is a method of making disciplined investments in Mutual Funds at regular intervals. While mutual funds are categorized as investment products, SIP is a way of investing in them.
With SIP, you get to invest fixed funds in a mutual fund scheme on a monthly basis. You can start an SIP with as little as Rs 500, depending on your ability to invest and the duration of your goals.
There’s a lump sum investment option in mutual funds as well but that is typically suited for investors who have sound knowledge about the market and good funds in their wallet.
The best part of opting for SIP over the lump sum is that you don’t need to invest all your money at one go. You can start small and then gradually increase the amount of your SIPs as you start to feel more confident and see growth in your portfolio.
Next, lets understand How SIP Works?
Just knowing the basics of SIP doesn’t answer the question of why you should invest in mutual funds through them. So, it’s time to understand how it works and how investors can use it for their investments. One of the major reasons why people choose SIPs is because of the investment flexibility they offer.
Also, the concept of SIP is built on the power of compounding. Once you invest your money in a SIP, the investment value starts multiplying over time. And because of its compounding nature, the gained returns are reinvested in the SIP scheme. Just to give you an example, if you invest Rs.15,000 every month for 15 years at an expected annual rate of return of 15%, then you would have accumulated a corpus of over Rs. 1 Cr by just investing Rs. 27 lakh. Isn’t that fascinating?
Now, let’s look at all the Pros of Investing Via SIP
Firstly, it’s a disciplined approach to investment:
As SIP is all about investing a certain sum periodically, investors can prepare their monthly budget in advance. Plus, you don’t need to worry about making the payments every month, as the automated payment feature takes care of everything. It directs the amount into the SIP mutual fund scheme on the payment date automatically. Thereby creating a disciplined channel of investment.
Secondly, you can start with very little:
You can make investments in SIP with your monthly pocket money as well. All you need is a minimum of Rs 500 to start your SIP. And when you see the growth of your money after a few years, you’ll be surprised. Well, its all thanks to the power of compounding.
Last but not the least – Rupee cost averaging:
Every investor gets agitated about the price changes and market movements, especially when things go south. But thanks to SIPs, these fluctuations do not have a large impact on your portfolio. As when the market falls, you are able to get more units of a mutual fund with your fixed SIP amount and vice versa. As a result the cost per unit is averaged and your portfolio remains comparatively safe.
If you too are also looking to start your investment journey, Mutual funds are a great way to begin. And Freecharge offers you Top rated Mutual funds from India’s biggest AMCs. You can start investing with as low as Rs 500. The Investing process is fast, Easy and 100% paper less. Don’t forget to check that out.