SIP is the Best Option to Start Small Investment

“Dream Big; Start Small; Act Now”

SIP or systematic investment plan has acquired a new sheen in the past several years. It has emerged as an investment instrument with higher return potential. It has come forward as a mode of investment that also offers many other benefits to investors. No wonder, people are now considering SIPs to invest their savings. Many, who till now never thought beyond recurring deposits, are now willing to give this non-traditional investment instrument a try and are willing to take calculated risk. Those who think on such lines are definitely taking steps in the right direction as the traditional investment options been overshadowed by SIPs. SIPs are indeed advantageous and offer better returns. Here is taking a look at why and how.

Why SIP is Beneficial

1. It takes away the pains of gauging the market mood – Since SIP involves mandatory regular investment in a mutual fund at fixed intervals, the investor does not have to keep a tab on the market mood. He cannot be swayed by the highs and lows. He does not need to time the market and as a result, the burden of deciding the right investment time is automatically eliminated. It is a big relief as very few can time the market accurately and mistiming has led to losses in many cases. So, once an investor enters into an SIP, he just has to float.
2. It brings financial discipline – In case of SIP, regular and periodical investment is a must. Therefore, the moment one opts for an SIP, one gets into the alert mode and saves enough to put into the SIP installments as the fixed amount has to be deposited on the assigned time. So, SIP kind of regulates the savings and expenses of an investor, making them responsible towards their finances.

How SIP is Beneficial

1. It averages the purchase cost of mutual fund units – Since SIP means regular investment of money in mutual fund units, investors compulsorily purchase the units. It automatically makes them purchase more units when the market is down and vice versa. This balances the total purchase price resulting in a lower average purchase price and thus, the investor is always at a vantage point.
2. It utilizes the power of compounding – In SIPs, the returns get higher because they are earned on the principal amount plus the returns earned on the previous amount. This way, the money starts compounding and it grows at a faster rate. The returns earned earlier get reinvested in series. As a consequence, more returns are earned on the small investment made at the outset. This helps to build a substantial amount of wealth in the long run. Longer duration is the key here but in SIP, even two to three years can bring in handsome return via the power of compounding. 
3. It lets you invest in a variety of financial instruments – SIPs are pretty flexible as in they allow the investor to put their money under different investment options like equity mutual funds and debt mutual funds. The former falls in the higher-risk, high-return category but the latter is low-risk and stable. So, if an investor decides to invest in a SIP, they can weigh their risk appetite and choose the plan accordingly. This is why SIPs are called systematic investment plans. An investor is not under any obligation to invest the entire money in one financial instrument. Also, they can make investments monthly, bimonthly, fortnightly or even weekly.

SIP is not entirely risk-free

There is no doubt that investors looking to put money in the equity market and begin with small investment would find SIPs to be the most gainful choice. But they need to remember that SIPs are not entirely risk-free. They do offer higher returns but the returns are dependent on the market. If the market is going downwards, the returns may not be up to the expectations but if the market is going upwards, it is sure to bring returns above the expectations of the investor. So, an investor should always remember that SIPs never give bad returns. It is just about an SIP not performing up to the mark.

Last but not the least, returns should be always evaluated with respect to other SIP funds, not with a different type of investment product.