Top Reasons to Start a Mutual Fund SIP Before the Year Ends

For all those planning to invest in mutual funds, a systematic investment plan (SIP) proves to be a useful option. In an SIP, you do not have to make a lump sum investment but can pay a fixed amount of money over a period of time. SIPs offer a strategic approach for you to invest in mutual funds. 

The most common SIP that people invest in is the monthly SIP whether they invest a pre-defined amount of money on a specific day of the month. This money is invested into a mutual fund of their choice. The amount of money to be paid monthly for a systematic investment plan is fixed but the Net Asset Value (NAV) of the mutual fund units varies day to day, so the SIP transaction purchases a varying number of units every time. The SIP investment interest rate also varies based on the market conditions.

Table of Content

• Why SIPs Are the Top Choice for Both Novice and Seasoned Investors

Why SIPs Are the Top Choice for Both Novice and Seasoned Investors

The Investment Amount Is Small

You can get the best return on mutual fund investments with a very small amount. When you invest in an SIP, you can start with an amount as low as ₹ 100 per month. This offers a lot of flexibility, especially for younger professionals with low disposable incomes. Further, you can also increase your SIP investment gradually by opting for the step-up option. Step-up SIPs allow you to increase the amount you invest over a fixed interval by a certain percentage.

The SIP Can be Stopped or Skipped

It is possible for people who invest in mutual funds through SIPs to either discontinue or pause their SIP at any point. Most of the mutual fund schemes do not involve any penalties if you stop making systemic investments. This means that in situations where you may be short of funds, you can skip one or two SIP instalments.

Inculcates Discipline in Saving and Investing

It has often been seen that younger professionals struggle with saving, getting carried away with unnecessary spending, especially in the starting years of their careers. Starting a SIP helps cultivate healthy saving habits, helping them save a decent-sized corpus over time. Additionally, several investors who start investing may struggle with keeping the investing up for the long term. SIPs also bring in discipline to your investment journey as a small amount is automatically invested for you every month.

There Is No More Need for Timing the Market

Market timing is the suitable timing that is perfect for entering or exiting the market for the best return on mutual fund investments. An investor aims to make an entry when the markets are low and to sell off when the markets are high. In practice, this is not easy to do as the market is highly volatile and unpredictable. SIPs remove this issue and the need for timing the market, as irrespective of the market condition, a fixed amount of money is invested for you at regular intervals. This way, more mutual fund units are purchased when the markets are low and fewer are purchased when the markets are high. This balances out the effect that short-term fluctuations have on your investments.

The Average Cost of Mutual Fund Units Is Reduced

As mentioned, SIP investments offset the impact of short-term fluctuations on your investments. SIPs also help in reducing the average cost at which you purchase mutual fund units. The Net Asset Value (NAV) of the fund is lower when the markets are low and higher when the markets are high. So, in the long run, when a fixed amount of money is invested in mutual funds through SIPs, the average cost of the units also tends to be lower as compared to making lump sum investments when the markets are high.

Compounding Benefits

You can get compounding benefits when you invest in SIPs. They help you reinvest the return to generate more profits in time. This results in a compounding effect that increases your investments at an exponential rate. This results in your corpus growing significantly over time.

No Emotional Investing

It is not difficult for investors to get swayed by the ups and downs of the markets. The volatility and unpredictability of the market often lead to people making emotional investment decisions that more often than not fail to deliver the results that were expected. However, with SIPs, investors are protected from making such emotional mistakes as their investments are managed by fund managers.

Complete Transparency

The Securities and Exchange Board of India (SEBI) and the Association of Mutual Funds in India (AMFI) have a number of stringent measures in place that are applicable to all mutual fund schemes and which Asset Management Companies adhere to strictly. These regulations are applicable to the type of assets that funds can invest in, the structure of the fund, KYC requirements, etc. These rules have been devised with an aim to protect the interests of the investors and to ensure complete transparency, making SIPs the safest investment avenue.

Track Your Portfolio Online

Almost all Asset Management Companies in India offer their investors the ability to make investments and monitor them online. Additionally, there are several third-party brokerage sites and mobile apps that you can use to track your investments.

Unlike most investment avenues, SIPs offer a number of advantages, including better returns over the long run. You can always use a SIP mutual fund calculator to get an idea about the returns on your mutual fund investments through SIPs. You can enter the monthly investment amount, the SIP investment interest rate, and the time period and the mutual fund calculator will provide you with an estimate of the returns you can expect.