9 Things You Should Know About SIPs

SIP for beginners is the ideal gateway into equity markets which allows small & regular contributions without needing deep market knowledge.

When comparing SIP vs lump sum investment, SIPs offer better cost averaging and lower emotional stress during market volatility.

(1) SIP is a powerful tool of Portfolio Diversification

SIP is a powerful tool of portfolio diversification. People invest in various asset classes like stocks, debentures, bank fixed deposits, PPF, gold, real estate, etc. If someone does not have proper knowledge of stocks to invest, he can invest in stock market through SIP route. As SIP funds are managed by professional fund managers, they generate very good returns.

(2) It generates superior returns

In the low interest rate regime, SIP delivers much higher returns. Stock market investments have delivered the highest returns among all categories of investments such as debt market, PPF, Bank Fixed Deposits, investment in Gold, etc. Funds collected through SIP are also invested in stock market ultimately which offers the superior returns to the investors.

(3) No need to time the market

As the stock markets move up and down in an unpredictable manner, timing the market is very bad idea. In SIP, you don't have to time the market and continue making your regular investments. You buy less when the market is up. You buy more when the market is down. Over a period of time the market fluctuations are averaged which may lead to higher returns.

(4) Allows you achieve your financial goals

You may have different financial goals such as children's higher education, buying a car, purchase of a house, medical emergencies, marriage of your children, etc. These goals are achievable with the help of investment through SIP. You have to first make necessary calculations of funds needed to achieve these goals, then you need to know the SIP amount that is required for achieving these goals and finally, you have to select the suitable SIP scheme/s offered by various mutual funds to meet your goals. You can take the help of various financial/ SIP calculators available on mutual funds websites or your financial advisor.

(5) Smart law of averages

As the amount is invested on a regular interval, it helps in averaging of cost for you. Sometimes the stock market is up and sometimes the stock market is down then you will get average cost of your investments made through SIPs. This is not possible in case of a lump sum investment made in a mutual fund. Investors don't have to worry about when to invest, how much to invest, etc. looking into daily market movements, as SIP investment reduces these risks significantly.

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(6) Magic of compounding

The real magic lies in SIP compounding returns where your earnings generate more earnings over time, accelerating your financial growth.

In SIP, you will get the benefit of compounding which means that the returns on the investment become a part of the investment and start generating returns, therefore, profit starts increasing at a much higher pace over a long period. Longer will be the term, higher will be the returns. Power of Compounding is called the 8th wonder of the world.

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(7) Lets you investing and gaining even if you don't have knowledge of markets

One who does not have any idea about stock market but wants to get higher returns being delivered by stock market, SIP has been proved to be the best tool for such an investor. SIP is a less risky tool of investing in the stock market.

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(8) Best tool for starting investment in stock market

As SIP is a regular investment over a period of time and not a lump sum investment, it is said to be the best tool of starting investment in stock market. You can decide the amount which you can invest on a regular interval and choose SIP scheme/s and start investing. The SIP amount is auto debited from your bank account and invested in the selected mutual fund scheme/s and units are allotted to you against such investments.

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(9) Option to choose from variety of SIP schemes offered by different mutual funds

There are as many as 3,80,000 possible ways to do SIPs offered by more than 230 schemes of equity and balanced mutual funds. You can choose any of the SIP that suits you and helps you in achieving your goals. If you find yourself unable to choose a good scheme for SIP for you, you can take the help of your financial advisor. Mutual Funds also offer many SIP types like top up SIP, flexi SIP, etc. which give you option to increase your SIP amount on a specific interval say in a year. A lot of flexibility is offered by SIP schemes.

SIP investment benefits include portfolio diversification, reduced market timing risk and long-term wealth creation through disciplined investing.

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Share This : Anupama is an MBA (Finance) and Chartered Financial Analyst (CFA). She also carries a Fellowship degree in Life Insurance Sector and is a Master of Computer Application (MCA). She is an expert in Finance Field with an experience of over 18 years on different managerial positions in finance industry including Stock Market, Depository and Mutual Fund Sectors. Apart from that she has remained for few years in the field of marketing as well. Her suggestions and advice for investments have been very useful to many people.
Her vast interest & expertise in the field of finance have encouraged her to write the articles so that others can also get benefitted out of them. She never loses any opportunity to learn and be creative. She is a valuable asset for CodeForBanks.com & important resource to all those around her.

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