If you are new to investment, in a bid to make the right choice, you may have been intimidated by a plethora of options available. Researching stocks, bonds, etc. could be a tedious task, especially for someone not from a finance background.
This is where mutual funds help. They are backed by a team of professionals who make these investment decisions for you by keeping track of the performance of the market.
There are also a variety of options within mutual fund schemes to choose from, based on one's risk appetite and financial goals.
However, despite the variety of investment options among mutual funds and even sufficient entry assistance, many hesitate to start investing. One of the major reasons being what investors consider as a 'lack of funds.'
A smart investor knows that even a penny saved now can go a long way in creating wealth for the future, and if you were to invest this penny saved, it would be even better.
This is where SIPs come in, to help small investors.
What are SIPs?
A Systematic Investment Plan (SIP) is an investment option offered by mutual fund houses that lets an investor invest a fixed amount at intervals (pre-decided by the investor) in a particular mutual fund scheme. It is an ideal mode of investment for someone who is starting with planning for a financial goal and does not wish to let debt obligations stop them from saving for the future.
Here are 5 reasons why:
1. Cultivates investment discipline
The periodic and automatic deduction that SIPs allow, encourages you to save as well as invest regularly. Instead of planning to start saving on a future date, you will be making efforts to invest in the scheme on say, a monthly basis, and manage to gather enough funds to get closer to your financial goals, like for your child's education or retirement.
2. You can invest very little
Most investment funds in India allow you to invest as little as Rs 500 per month. You are also given the option to raise the SIP contribution as you continue with the investment or you could start another SIP in the same scheme or a different scheme of your choice, thereby raising the total investment amount you set aside each month.
3. No emotional investing in markets
Markets have their ups and downs, which may make you regret missing out on an opportunity to purchase at the right time. However, trying to time the market will be stressful, in fact, it is impractical as markets are unpredictable by their very nature.
The volatility may also cause you to make emotional investment decisions that will fail to deliver expected results.
In the case of SIP, you have to keep investing a fixed amount each month, irrespective of the short-term fluctuations in the market and let the mutual fund house make decisions for you.
4. Rupee cost averaging
In continuation of the above point, the NAV (net asset value) of a mutual fund scheme falls when markets are performing bad and rises when markets outperform.
When you keep purchasing varied quantities of mutual fund units at changing costs, your cost of purchasing the fund will average out.
In the case of SIP, you will keep investing a fixed amount irrespective of market conditions, thereby the average cost of purchasing all the units will be on the lower side as compared to making a lump sum investment when the markets are running high.
5. Easy way to start investing
Top asset management companies allow their customers to register for a SIP online and also manage their investment online.
Once the SIP has been created, these fund houses allow customers to track the performance of their investment online, make changes to their plan and even redeem it, all within the comfort of their house.
This is an investor education and awareness initiative by Axis Mutual Fund. Investors have to complete a one-time KYC process. Visit www.axismf.com or contact us on email@example.com for more information. Investors should deal only with Registered MFs, details of which are available on www.sebi.gov.in - Intermediaries/Market Infrastructure Institutions section.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully, before investing.