Systematic Investment Plan, commonly known as SIP have garnered a lot of attention of retail investors in the past few decades. And why wouldn’t it? The idea of systematically investing a small, insignificant sum of money at regular intervals as opposed to investing a substantial sum of money in one go is quite appealing. Isn’t it? According to a recent data by the AMFI (Association of Mutual Funds in India), the SIP contributions in Dec 2021 stood at an all-time high at Rs 11,305 crores. As per the stats produced by the AMFI, this is the highest SIP contribution enjoyed by SIP mutual funds in a month! Despite all these stats and data, investors can’t help but wonder if SIP investments are actually worthy of their time and efforts or if it is just hyped up among retail investors. Does it make sense to take the SIP route than the lumpsum mode of investment? In this article, we will aim to answer these questions for you.
What is SIP?
If you are wondering what is SIP, it is simply an investment tool that allows investors to invest in mutual funds in an organized manner. Under SIP investment, an individual allots a fixed sum of money towards their desired schemes at regular intervals for a fixed period. Hence, SIP investments enable investors to invest in the markets on a regular basis despite the market condition.
Benefits of SIP
Here are a few reasons why SIP investments stand apart from lumpsum mode of investment:
- Low minimum investment amount
Unlike lumpsum mode of investment, SIP investments allow investors to break their investment amount into small, insignificant parts. Additionally, the minimum investment amount to invest in mutual funds is quite low at just Rs 100 per month. - Instil financial discipline
SIP investments enable investors to invest in the markets in a systematic manner. This helps to inculcate a sense of financial discipline among investors which is much needed when you invest in the markets. - No need to time the market
Unlike lumpsum mode of investment, SIP investments negate the need to time the markets. This is because when you regularly invest in the markets despite the prevalent market condition, it does not matter when an investor enters or exits the market. - Rupee cost averaging
SIP investments help investors to invest in the market during various market cycles. In other words, long-term investing in the markets through SIP mode of investment ensures that an investor invests in the markets during both – bull and bear phase of the market. As a result, an investor ends up collecting a higher number of mutual fund units when the markets are down as compared to when the markets are soaring high and vice versa. This enables investors to average out their total cost spent against buying mutual fund units. This is known as rupee cost averaging. - Flexibility
SIP investments are quite flexible in nature. An investor has the liberty to change their investment duration, type of SIP, frequency of investments, etc. as per an investor’s financial needs.
