Systematic investment plans (SIP) is an investment option that allows you to build a corpus over time with investments as small as Rs.500 a month. This is the reason why SIP continues to be one of the most popular investment options. Below are a few reasons why SIPs can be beneficial.
Automate with auto pay
Most of us are busy with our careers and personal life that we often miss out on investing. But SIP could prove to be a good solution for this. SIPs have an autopay system. It can automatically deduct payments from your bank account every month and invest automatically in the mutual fund.
Managing autopay is also easy as you can change the payment amount, skip a payment, or even cancel the autopay whenever you need.
Compounding
Compounding is the magic element that helps you grow your money when investing through SIPs.In investment terms, compounding is when the profit you have garnered through investment is reinvested in to fund, and the new, compounded amount starts to earn profits.
For instance, suppose you have invested Rs.1000, and it earned you Rs.10 at the end of the first day, the compounded amount of Rs.1010 starts to earn profit from the next day. This addition can do wonders to your investments, especially in the long term.
For example, if you invest Rs.15,000 every month in a fund that gives you 15% returns for 15 years, according to the 15*15*15 rule, you can accumulate a corpus of Rs.1 crore. But if we use a SIP calculator to see the math here, you can understand that the amount you invest would only be Rs. 27 lakhs, and the rest is profit. So what helps the investment grow here is the compounding effect.
Demands less market knowledge
Every investment requires you to have knowledge for you to get the best out of it. But if you choose to invest a large amount of money directly, you need to have good knowledge about when to invest and where to invest.
But with the SIPs, since the horizon is long-term, short-term market fluctuations may not have much impact on the growth of the fund. That means that even if you start to invest at the wrong time, there is still a chance for your fund to grow. Also, you may not need to keep a close eye on everyday market movements due to the same reason.
How to make the best out of your SIP investment
Below are some of the tips to make the best out of your SIP investments.
Invest according to your goals and risk appetite
Each investor will have different investment goals and risk appetites. However, you must invest according to your horizon to get the best results. Hence, make sure you understand your investment horizon first and invest in a fund with similar attributes.
Stick to your plan
SIP investments are for longer time periods, and the potential it has need not reflect in short-term results. Hence, it is important to stick to your plans and invest monthly. Of course, SIP gives you the option to skip instalments when you can’t afford them in some months, but overall, it is not advised to miss an instalment.
Assess your fund every now and then
As discussed above, your fund usually doesn’t need constant monitoring and intervention. But, still, it is a wise idea to check the performance every once in a while.
Following the above pointers could help you grow your money with SIPs.There is no reason to wait, especially when SIP investments are proven to be helpful if invested right. Talk to your investment advisor and invest today!