Why Should You Invest in Mutual Funds Through SIP's?

Most investors are often confused about whether Systematic Investment Plans are a type of Mutual Fund or if it is a different investment. It is important to note that SIPs allow investors to periodically invest where you can buy the units of a Mutual Fund every month by investing some amount. Unlike the Recurring Deposits, you can start and stop the SIP any month without any fees for premature closure.  

Investing in Mutual Funds through SIPs benefits you by earning decent potential returns and other advantages over Lumpsum Investments, here is how: 

Power of compounding

Each time you pay towards a fund, you buy more units, generating returns on your investment. These get further reinvested in the scheme, giving you compounding benefits. If you start investing early in Tax-Saving Funds, like Equity Linked Savings Scheme or ELSS and remain invested longer, they reap optimal returns through SIPs. 

Rupee cost averaging

Investors can invest in schemes that seem profitable and have been performing well. Usually, when they outperform the benchmark, more investors invest, increasing the Net Asset Value. The prices of Mutual Fund units fluctuate. In such scenarios, you can average out the cost of total units purchased through SIP. It may not apply to Lumpsum Investments. 

Light on the pocket

SIPs are light on the pocket because you do not invest a huge amount at once but contribute small amounts periodically. You can skip the instalments when you run short of money and increase or decrease the monthly SIP amount as per the requirements and financial conditions. Beginners can start with amounts as low as Rs. 500, which makes it convenient even for students and young earners with part-time jobs to invest. 

Flexibility 

SIPs are flexible because you can start or stop them anytime or skip an instalment and make changes in the SIP amount. It offers the flexibility to withdraw money partially or fully without any charges or discontinuing the scheme. Several funds, like ELSS and ULIPS, are tax-saving and Insurance and Investment Plans, respectively, which generate decent potential returns to cover the emergency corpus. 

Saving discipline 

SIPs develop regular saving and investment habits. You can set a date for auto-debit from the Bank Account to invest in a scheme. This way, you develop a disciplined investment habit. Every month, you contribute a small part of your income to Mutual Funds that can reap good returns.  

Conclusion

You should check the past performance when investing in any Mutual Fund category through SIPs or lumpsum. For instance, check the fund’s 15-year record against its benchmark and peers. If it is a new fund, look for at least three to five years of track record. By investing through SIPs, you can save money to achieve your long-term investment objectives and manage your finances efficiently without burdens.