Sometimes, being on the auto mode simplifies life. No time and effort is lost in making decisions for scenarios that are unlikely to change. SIPs or Systematic Investment Plans do the same for your investments.
Here are some reasons why you should look at investing in Mutual Funds via the SIP mode:
Instills the discipline of investing
First up, SIPs give the behavioural benefit of making investments a habit. Savings usually happen if (and only if) there are leftovers from the month’s spending. A SIP is advantageous there; every month a fixed amount moves from your bank account to the fund, where it grows over time.
Moreover, SIP ensures your investment outgo is linked to the normal income and expense cycle. You receive salaries on a monthly basis, most bills and dues are charged on monthly basis. So having a monthly SIP makes investment a part of regular outgo and lifestyle.
Small amounts, doesn’t hurt
You can start a SIP with as little as Rs.500 every month. This can be increased to larger amounts, as your income and savings ability increase.
No worry of timing markets
The success of lump sum investments, no matter what the amount, depends to a large extent on the timing. If you buy a large number of units when the markets are expensive, your returns could suffer. Average investors may not to be able to time markets well. As a result they may wait endlessly for markets to correct before investing and lose out on good opportunities to enter the markets. Or they might invest when markets are overvalued and exit on panic when they correct, resulting in losses.
This worry is reduced in SIP, since you’re investing smaller amounts over a period of time, at different market valuations.
Benefit from cost averaging
In the months when markets are expensive your money buys fewer units and when they are cheap you get more number of units. Thus SIP helps in averaging the cost of investment.
Even when you have lump sum amounts available for investing, from a windfall gain like bonus, arrears, etc., taking the SIP route is better. Invest it over a period through a 6 month or 1 year SIP, depending on the total investment amount.
Mature investors with experience and knowledge may choose to invest lump sum when they think markets are priced cheaply. Yet for the majority, SIPs work good due to rupee cost averaging.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.