3 reasons why you should opt for SIP investments

3 reasons why you should opt for SIP investments
July 24 14:28 2019 Print This Article

India as a country lacks severe penetration in financial products. According to an AMFI presentation last year, India has 750 million unique bank accounts and 290 million unique PAN numbers but a Mutual Fund investor base of only 20 million.

Indians generally tend to stick to traditional products like FDs and PPFs to save and grow their money because they feel investment is time consuming and full of risk.

Investing doesn’t have to be hard or scary. In fact, you can make it simple and easy. Just start a Systematic Investment Plan (SIP). A SIP or Systematic Investment Plan by definition allows an investor to invest a pre-determined amount at a regular interval (usually monthly). This is done either by via an ECS mandate, or through post-dated cheques. The correct amount to invest can easily be determined by using a sip calculator online.

Here are 3 reasons why you should opt for SIPs:

1.Discipline:

A SIP is a natural product for people with a fixed monthly income. A SIP can be set up at the start of the month, right after your monthly paycheck comes in so that you can treat it like one of your monthly bills. Only, unlike the other payments you make, this amount will come back to you.Most good investment advisors will tell you that it is extremely importantto paying yourself first every month. Automatic investments in a SIP are a great tool to use to help to do this.

Investmentsare often treated as instinctive leading to people to treat only an idle amount of money as investment-worthy. This leads to investment irregularityin case of a financial constraint.A SIP helps make your saving and investing habits regular.Since the amount gets debited at the start of the month leaving no excuse to miss the investment that month, SIPs help rein in impulsive spends.

To calculate just how much you should be investing every month, to reach a certain goal you can use a SIP calculator online.

2.Rupee cost averaging:

Many investors are often concerned about the best time to invest and try to figure out the right time to enter the market. This is understandable since equity markets are volatile.

A SIP is essentially rupee cost averaging since invest a fixed amount of money at regular intervals. Rupee-cost averaging is one of the major factors which makes SIPs such a favourable option for long-term investments.

You get more units when the price is lower and fewer units when the price is higher. By investing in a regular manner, you can opt out of the complexity of trying to figure out the best time to enter the market. Rupee-cost averaging nullifies the effect of short-term market fluctuation on your investments.

Eg. If you are investing ₹100 every month on a SIP.

Unit price in Month 1: ₹ 20. So you end up buying 5 units.
Unit price in Month 2: ₹ 25. So you end up buying 4 units.

In total, ₹200 has bought you 9 units. If the unit value (NAV) goes up to say ₹30, your portfolio value goes up to 9 units x ₹30 = ₹270

3.Convenience:

It is fairly convenient to start a SIP investment. All you need to do is register on the Mutual Fund appand if your KYC is already done, just add your bank details and sign and upload an ECS mandate.You can go ahead and pick fund recommended by the app you’ve registered on.

Most apps have the option of increasing or decreasing your SIP. Most mutual funds have a minimum investment amount starting from as little as ₹500 and in some cases even ₹100, so you need not put in large amounts.

Remember to set an amount you are comfortable with and can help you reach your investment goals. Finding the right amount to invest can be easily done with a sip calculator.

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