In recent days, investing in mutual funds through SIP has become very popular. The alternative method to invest in mutual funds is through a lump sum investment. Through SIP, you invest a fixed amount of money every month in the fund that you want. If you learn how SIP works in a mutual fund, the entire investment process will become very simple for you. The money would be deducted from your bank account at a predetermined date and invested in your portfolio. Let us look at the six reasons to invest through SIPs.
- You can stop at any point - You might not be satisfied with the results or you might have a change of mind at a later date. If something like that happens and you want to stop the proceedings, you can simply opt out of the plan. This is much better than the alternative - recurring deposits, where you need to pay a fine. After stooping the investment, you can choose to redeem the units that you have bought in this span or keep the capital invested.
- You can skip some payments - You might not have enough balance in the account. This might force you not to be able to make the SIP payment. This will not cause you any problem as you can continue the SIP payment next month without any problem. You would not need to pay any charges or fine. In case of a recurring deposit, you would most likely need to pay a fine for missing out on the payment.
- You can start a new SIP in the same portfolio if you have more money to spare - If you think that you have more money to spare, you can start to invest in a new SIP plan. So it is important that you learn how SIP works in the mutual fund. You will be saving more and squandering less.
- You will become more disciplined in your savings - One of the main reasons why SIPs are preferred and advised by most financial advisors today is that they bring discipline. You invest in the markets regularly. This is without the need to time the market and considering stock prices every month. You do not need to worry about all the gory details, and yet you create a very good habit.
- You can invest very small amounts - Unlike investing in stocks, where you need to buy units, you can invest an amount of your choosing every month. SIPs start as low as Rs. 500 a month. This will help you to secure your future and start getting an insight into the market.
- You benefit from the compounding effect - When you invest in mutual funds through SIP, you get monthly returns. These returns are added to the actual investment. The monthly SIP and the returns earned through them are kept invested continuously. This compounding effect helps to ensure that the growth is exponential.
These advantageous factors encourage more people to invest in Systematic Investment Plans.
