A common misconception people have about investing in the market is that investments need to be made in lumpsum. While it might not look like a problem when the amount is small, people may hesitate from investing in case the investment amount is large. But what if there was a way of investing in mutual funds that will not require you to incur debt and allow you to invest in the mutual fund scheme regularly? That’s where a systematic investment plan or SIP as it is referred to, steps in as a probable investment option.
Simply put, SIPs are an investment mode in which a fixed amount is deducted from your account on regular basis (monthly deductions being a common example). This method of payment ensures that you don’t take the pressure of arranging the funds for a lump-sum investment. Also, SIPs ensure that they don’t burn a hole in the investor’s pocket. To pay for the investment you can request the bank to enable automatic deductions from your savings bank account at regular intervals specified by you. In case you were to forget the payment date, this feature ensures that a mutual funds investment goes through smoothly.
While lump-sum investments are suited for investors who are either very rich or have access to the investment amount, SIPs are suitable for all kinds of investors. Even owners of newly started businesses can opt for systematic investment plans. Listed below are how they can be helpful:
- They offer flexibility on investments:
Firstly, predicting the performance of a business is difficult. You might encounter months when the business is lean and there are some months when the business may be extremely profitable. However, regardless of the present condition of your business, SIPs can give you the flexibility to adjust the amount as per your financial situation. If your business has performed well over a period, you can even opt for a top-up of the SIP amount by a certain percentage. Similarly, in case your business is currently going through a lean patch, you can also choose to decrease the amount accordingly. When the business picks up, you can opt to increase your investments.
- It is very easy to invest in SIPs:
One of the salient features of SIPs is how easy it is to invest in them. It is completely possible to start with a low amount in a SIP. All that needs to be done is for the investor to be KYC-compliant. Once your KYC is done, visit the website of the asset management company and start investing in a mutual fund scheme of your choice. Today, technology has evolved to such a place that you don’t even need to have access to a computer to invest. Apps that can be installed from the play store of your smartphone can help you in completing the SIP process.
- SIPs can also help in solving operation costs:
Numerous operation costs are involved while managing a business. As time passes by, operation costs start rising to accommodate things like an increase in the number of employees. You could meet the challenge faced by operation costs by starting a SIP. With this action, you end up slowly building a reservoir of funds that are capable to address these expenses. For example, if you were to choose to start an equity fund SIP, instead of directly allocating funds to stocks, you may have a greater chance of achieving success in terms of wealth accumulation.
- They also help in diversifying investments:
Systematic investment plans help diversify investments across different asset classes, which helps in the mitigation of investment risks. Importantly, these plans can help you in keeping you invested across different market cycles, which is important in making long-term gains.
- These plans are also useful for building a capital:
While managing a business, one’s goal should not only be restricted to addressing current needs. You also should aim to build capital that could help in the future for things such as buying machinery, implementing technology, expansion, and many more. While it is possible to opt for tailor-made business loans, it’s wiser to build a capital reserve that could help in reducing the dependence on loans that are known for attracting a hefty interest rate.
Apart from the ways mentioned above, SIP plans also help you in spending more time in the market, which is essential to make the most of your mutual fund investments.