Benefits of SIPs you need to know

Do you remember the story of the turtle and the rabbit? The rabbit paced and stopped and lost to its erratic behaviour. But the slow and steady turtle won. Irregular patterns can make you lose the race, particularly in investing. Contrarily, a slow, steady, and consistent approach helps you ace the game. A Systematic Investment Plan (SIP) is the equivalent of the turtle from your childhood fable. Read on to find out the meaning and benefits of SIPs.

What are SIPs?

An SIP is a method of investing in mutual funds. When you invest in a scheme, such as debt funds, hybrid funds, equity mutual funds, international funds, etc., you can do so in two ways. The first is in a lump sum that lets you make a one-time investment in the scheme of your choice, and the second is through SIPs. Under this method, you can select a frequency and amount for your investment and invest consistently for however long you wish. For instance, say you invest Rs 5,000 in a mutual fund scheme and set monthly SIPs. So, every month, Rs 5,000 will be transferred from your account to the mutual fund’s bank account for investment.

SIPs are one of the most significant mutual fund benefits that you can take advantage of. Let’s find out how it can be helpful for you.  

Benefits of SIPs

• Affordable: SIPs allow you to start investing with an amount as low as Rs 500. They are suitable for any and every budget and make investing possible irrespective of your income.
• Rupee cost averaging: SIPs average out the cost of investment over time. When the market is high, you get fewer units, and when the market is low, you get more units. While you invest the same amount of money, the number of units you get differs. Over time, SIPs average out the cost and eliminate the need to time the market, while offering you balanced returns.  
• Convenience:You can start and stop an SIP whenever you want. You can put in extra money with a top-up SIP if you have surplus funds. Moreover, there is no fee or penalty for suspending a SIP. Basically, SIPs accommodate your changing life needs and not the other way around.
• Power of compounding: SIPs facilitate long-term investing, which in turn gives your money the time to compound. Your profits are reinvested into the market with every new SIP, helping you to earn more in the end.

Hop on to the next section if these benefits have intrigued you and you are now wondering how to invest money through SIPs.

How to invest through SIPs?

• Pick a mutual fund scheme: Browse through funds, assess the risk component of each option, and then fix an option for your needs.
• Select a frequency:Set a frequency for your SIP investment, such as weekly, monthly, quarterly, etc. You can alter this at a later stage, too.
• Choose an amount:Pick an amount for your SIP investment. The minimum amount usually starts from Rs 500, and you can go as high as you want. 

Now, set up a mandate with your bank, and you are good to go.

Conclusion

SIPs bring in a lot of ease, which is why they are preferred by most people. However, it is vital to pick the right mutual funds to benefit from SIPs. You can do so by carefully selecting schemes based on your goals, risk appetite, and needs. 

An investor education initiative by Edelweiss Mutual Fund

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