Pros and Cons of SIP (Systematic Investment Plan)

If you have money, you need to invest it properly in order to earn good returns over it. There may be several investment alternatives available for you. One such avenue is Mutual Fund Investment which is one of the best in terms of providing very handsome returns.

Further, you can invest in a Mutual Fund either in lump sum or in instalments at a regular interval. Both the options are open to you and you can invest as per your own choice.

It is always advisable to invest in equity schemes of a mutual fund in instalments in order to minimise the risk and maximise the returns. That's the reason why many investors choose SIP route to invest in equity oriented scheme of a mutual fund.

SIP stands for Systematic Investment Plan in which a fixed amount is debited to your bank account periodically and credited to the equity scheme of a mutual fund.

Through SIP, you are able to automate your mutual fund investments. There are some Pros and cons of SIP (Systematic Investment Plan) which are attached to such SIP investments.

Pros of SIP (Systematic Investment Plan)

• Can be used as a financial planning tool
• Lump sum amount is not required
• Minimisation is risk
• Maximisation of return
• Rupee cost averaging
• Benefit of compounding
• Achievement of long term goals
• Multiple frequencies like daily, weekly, quarterly, half yearly and yearly modes are available
• Various types of SIPs are available in mutual funds such as flexi SIP, step-up SIP, perpetual SIP, pause SIP, etc. in addition to a regular SIP

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Cons of SIP (Systematic Investment Plan)

• Control is minimised
• You get average returns
• Lower returns on a rising market
• Difficulty in calculating total returns earned on SIP

Though there are some disadvantages, still there are many advantages of SIP. If you start early, for longer term and a good mutual fund is selected for SIP then SIP is proved to be one of the best tools for wealth creation.

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