Understanding of SIP
Under SIP investors save more with a small amount of money while benefiting from the long- term.
In SIP, a fixed amount of money can be as low as ₹ 500, which is deducted from investor’s savings account month and directed towards the mutual fund choose to invest in.
But the only difference here is, investor’s money is deployed in a mutual fund scheme (equity schemes or debt schemes) and not in a bank deposit, and hence investor’s investments (in mutual funds) are subject to market risk.
In SIP, the investor invests in a time-bound manner without worrying about the market dynamics and stands to benefit in the long-term due to the average costing and power of compounding.
In the modern era some AMCs (Asset Management Companies), mutual fund houses provide the ease and convenience of transacting online. They have set up their online transaction platforms, where one can do SIP investments by following the procedure as made available on the websites.
When an investor invests in SIP regularly to invest in the long term, the benefits are magnified by the compounding effect.
Compounding effect ensures that investors earn returns on the principal amount with the gains on the principal amount i.e. investor money grows over time as the money invest earns returns and the returns also earn returns.
2. Disciplined access to investing
By invest regularly investors bring discipline to their investments as they treat their SIPs like any other fixed expenses in a month.
3. Start an Investment with a low amount
An investor can start its investment as low as ₹ 500 per month.
Investors can start and close their investment in SIP very easily without any foreclosure penalty.
5. Diversify in Investments
6. Saving Habit
SIP increases the saving habit among the investor to invest it systematically every month or quarter.
7. Bundle of Schemes
8. Auto Debit Facility
Investors have been no need to visit the AMC office or deposit a cheque every month. Every investor must have to do is sign an auto debt and the amount will be debit from investor’s bank account on one of the dates chosen by them. SIP can also be started online from AMC’s website.
9. Help in goal planning
SIP helps an investor to build its future goal. Goal related to their dream house, child highest education or marriage, and their retirement.
10. Family Guard
It provides family security to the investor’s family.