SIP in mutual funds has seemed to have quite some popularity in recent years. Systematic Investment Plan or SIP is an easy and user-friendly instrument for mutual fund investment. Its functioning is quite similar to that of recurring deposits. In a recurring deposit, you keep saving a fixed amount for a particular period. Similarly in SIP, you must invest a fixed amount regularly in mutual funds schemes of your choice. These schemes are known for overcoming inflation and generating wealth over time.
Why invest in mutual funds through SIP? Here are a few reasons that prove how continuous SIP in mutual funds could benefit your mutual fund portfolio:
- The power of compounding: Compounding occurs when the investments that have been made by you start giving you returns. In the same way, a SIP that has been continuing for a long time enhances the power of compounding. The little that was contributed continues to amount to making a lot of cash.
- Starting small: This is one of the greatest advantages of SIP in an MF portfolio. You don’t have to be wealthy or wait to have a lot of cash in hand to start your SIP journey. The best part about investing in SIPs is that you can have as little as Rs 500 to start your investments per month.
- Flexibility: SIPs leave the choice to you to decide on how much sum you want to start investing with, the scheme in which you want to invest in, and the timeframe that decides when you want the SIP to continue. You have the option to invest each day, per month, or every quarter in the scheme of your choice and preference.
- No requirement of timing the market: SIPs could be a good tool for those who do not have proper know-how of how the financial markets work. Under SIP in mutual funds, you invest on a regular basis despite the market fluctuations. This shakes off the burden of timing the market now and again as the regularity in investments averages out the cost of the purchase over that period.
- Convenience: When you invest through SIP in mutual funds, the amount is automatically debited from your account. This removes the worry of investing each month and assures your financial discipline.
Harnessing the power of SIPs
Thus, a SIP portfolio could help you gain from compounding and gain a trajectory in your wealth growth in the long run. If you have big plans for your future and if the lack of wealth is a hurdle for you, take the leap and start investing smartly in mutual funds.