Did you know that the number of Indian Mutual Funds SIP accounts has reached over 8.76 crores so far? (Source - AMFI)
But what makes so many people invest in SIPs?
We all know it’s a way to grow our money. However, you can actually add a boost to your long-term investment plans if you know the essence of SIP mutual fund benefits and how they work.
Systematic Investment Plans (SIPs) help you grow your wealth by regularly investing a fixed amount in mutual funds, either monthly or quarterly.
For long-term investing, an investor can choose the mutual fund they want to invest in, and then every month or quarter, the money is auto-debited from their account. From this money, the mutual fund units are bought and registered in the investor’s account. With the mutual funds unit value, the value of these mutual funds keeps growing. Then, this money is reinvested to buy some more mutual fund units the next time an investment is made. This way, the money keeps compounding for the investor.
Read More: Why Should You Go for SIP Mutual Fund?
SIPs offer many advantages, making them increasingly popular, especially among young people learning about mutual funds. Here are some common SIP benefits for long-term investments:
We often think about saving and investing, but our busy lives leave little time for research. Plus, most people don't want to frequently change their investment plans. Thus, it is a good practice to keep a small amount of money aside every month and invest it in mutual funds' long term investment plans. This way, you stay financially disciplined and use your money the right way.
SIP benefits us by reducing the average cost of mutual fund units. The cost of mutual funds fluctuates based on the changing market prices. However, since you invest the same amount every month, you do not have to pay any higher or lower amounts for long term investing. More mutual fund units will be bought when the market is low. Vice versa, fewer mutual fund units will be bought when the market is high.
There’s a fixed Net Asset Value (NAV) set for mutual funds that determines the per-unit price. As beginners, you may not have sufficient capital or knowledge to invest more. So, one of the best advantages of SIP is it allows you to start as small as INR 100 or INR 500 for your SIP.
The security capital grows with long term investing in SIP. The return you get from a systematic investment plan benefits you as you can reinvest this money. This way, the value of your portfolio increases with long term investment plans, and you get compounded returns.
Understanding the importance of long term investing and planning, SEBI has asked the mutual fund companies to provide every detail of the fund to their customers. This makes SIP a safer option for new investors.
SIPs are ideal for all investor profiles due to their simplicity and consistency. Whether you're a novice or an experienced investor, SIPs require minimal time and effort for research. This ensures a disciplined approach to wealth accumulation. They also cater to diverse financial goals and risk appetites, making them accessible and effective for everyone.
With SIPs, you have flexibility. You decide how much to invest monthly without obligations. Start, stop, or increase your investment easily, adapting to your financial needs and goals.
Must Read: Which Are The Best SIP Mutual Funds For Long Term Investment?
Here are a few considerations you need to take care of before starting with your SIP investments:
The investment horizon refers to the length of time you intend to invest before requiring access to your funds again. This timeframe is crucial for long term investment planning as it helps assess your risk tolerance and identify suitable investment funds.
Choose your fund after considering the past record, the fund manager’s expertise, the expense ratio, and the fund’s investment objective. Investing in equity offers higher growth but also has higher risks. However, investing in debt securities gives you stability but lesser returns.
Reviewing your SIP performance regularly, about every 6 months, is essential for long term investment plans. It helps you know if your funds are growing and aligning with your goals. Check how your portfolio is performing, and make changes if needed.
If a mutual fund is not performing well for more than 18 months, it’s time to change your mutual fund.
Invest for at least 5 years to eliminate risks completely and take advantage of compounding.
You can reap a plethora of benefits if you start investing in SIPs early on. However, it is necessary to invest for the long term to earn compounding interests. It can be a little confusing initially when you opt for long term investing, but getting the right guidance from trusted platforms like Sharekhan can get you going. Moreover, you can also take the help of SIP calculators online to check how much return you will earn in a specific mutual fund after a given period.
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