Systematic Investment Plans, commonly known as SIP have gained popularity in the past few years and for all the good reasons. Contrary to most investors’ belief, SIPs offer more than just wealth creation to individuals. SIPs also help to generate higher returns when invested for a long tenure. Following are some of the top reasons why you should consider investing in mutual funds via SIP to generate these high returns:
- Instils financial discipline
One of the most important features of SIP is that it imparts the habit of financial discipline among investors. With SIPs, investors are destined to invest a specific amount at specified intervals regardless of the market conditions. Since the money is automatically debited from your account, the chances of missing an investment or the market conditions influencing your decision significantly come down.
- Offers the benefits of compounding
Power of compounding permits investors to gain returns by reinvesting their returns. Experts advise that it is always better to begin investing early with an insignificant amount rather than waiting for a large sum to start your SIP investments. Compounding helps to turn a small amount into a large corpus, thus a lot of people claim it as the eighth wonder of the world.
- Averages your purchase cost
In SIP, you invest a fixed amount regularly. Hence, you end up buying more units of the mutual fund when the markets are low. Similarly, you buy lesser units when the markets are high. This averages out the purchase cost of the fund over time. This concept is known as ‘Rupee Cost Averaging.’
- No need to time the market
It is usually recommended to not invest in an inflated market. Most investors try to purchase the stocks when the market is low and sell them when the markets are high. Thus, timing the market is very essential. However, when you invest via SIP, you need not worry about timing the markets. Thanks to the benefits of rupee cost averaging offered by SIPs, you just need to invest a pre-determined amount continuously for a long duration.
- Helps you to keep emotions at bay
It is very important to keep your emotions at bay while investing. In the short term, the markets fluctuate rapidly and considerably. Witnessing such ups and downs in your portfolio, you might feel tempted to make impulsive purchases or sales. This is a frowned upon concept by experts. You should stay invested for a long duration. By investing in mutual funds via SIP, you follow a disciplined approach towards investing. This helps you to prevent yourself from short-term volatility in the market.
Remember the earlier you start investing, more the benefits you reap from your mutual fund investments. You can also use an SIP calculator to gauge the future returns of your investments and plan your finances accordingly. For your convenience, you can also invest in mutual funds online via SIP mode. Happy investing!