Investments are considered a viable medium to achieve financial success but the process of the investment may get slightly tricky for many people. There is a lot of information available nowadays, too much in fact. Having basic knowledge regarding the fundamentals of trading like risk management, financial planning, capital to invest, etc makes the process easier.
Focusing on the idea of risk management especially, Systematic Investment Plans have become a comparatively simpler option for many individuals to achieve their financial goals. Investing in a SIP often proves to be a good option especially for people who are starting their investment journey.
A (SIP) or a Systematic Investment Plan is a mode of investing where you invest a small portion of your funds in regular intervals, be it monthly or quarterly, etc. As the name suggests, it’s a systematic way of investing in Mutual Funds where there is no need for a large capital at the start and also the risk is fairly less compared to other investment avenues. Investing smaller amounts in regular intervals helps the investor to analyze his/her current situation and invest accordingly.
Benefits of SIP:
- Simplicity : SIP’s are simple to invest in as every information that is required is typically provided to the investor. Alongside this, the amount to be invested is decided by the investor too, thus a much more planned way of investment can take place by investing in a SIP.
- Low Amounts : Investing in a Systematic Investment Plan does not require huge capital. You can start a SIP investment with as little as Rs.500. It is convenient and also offers a disciplined route in terms of investing your money.
- Rupee Cost Averaging : A key concept while investing in a SIP, rupee cost averaging essentially helps us invest our money as per the conditions and trends of the market. If the market is experiencing a downward trend where the rates are high, one can invest lesser amounts. On the other hand, if the market is booming and the values are at a low, a person can invest higher amounts to make the most of the eventual upturn of the values.
Thus, SIP’s help us invest according to the market and keep track of the trends of the market in an easier manner.
- Compounding growth: While investing in a SIP, your profit is reinvested for you and keeps generating more income in return. So as long as your investment runs, you will receive the growth for both your initial investment amount and all the accumulated profit that you have earned during the period cumulatively; resulting in a snowball effect of returns to your investment.
So a SIP investment is a cost-effective and more strategic way to invest money. A lot of the factors that generally worry new investors like the volatile market or the requirement of a larger amount of income are all easier to track while investing in a Systematic Investment Plan. This in general is what makes SIP a popular mode of investing, especially for beginners in the market.