What is SIP Investment, Its Benefits & Features?

Due to this SIP benefit, investors get minimally impacted by market conditions if they continue investing over the long term.  

● Better Investment Disciplined: Another advantage of SIP is that it makes investing in mutual funds more disciplined and organized. While on the one hand, the investor keeps adding investments periodically, SIP also ensures that the investor’s finances are not strained when making the investment.

● Small Individual Investments: One of the key SIP benefits is that you can start with amounts as small as Rs. 500 per month. This makes SIP investments affordable for even the smallest investor.

● Convenience: Being an automated process facilitated by standing auto-debit instructions provided to the bank makes SIP a convenient way to invest. Furthermore, the automated process ensures that you never miss a single chance to add to your investments.  

● Flexibility: Another important SIP benefit to consider is its flexibility. Investors can pause or cancel existing SIP or a start a new SIP with minimal restrictions. This flexibility ensures that mutual fund investments can be increased, decreased or even stopped by the investor based on his or her financial situation.

● Power of Compounding: This is one of the SIP benefits that results from staying invested for the long term. Using the SIP route, you can start investing earlier in life with smaller amounts and stay invested longer. This ensures that the returns from these small investments get more time to grow through the power of compounding so that you can create a large investment corpus with relative ease.  

Factors to Consider While Investing in SIP

While SIP benefits are many, you do have to consider certain factors before you start making mutual fund investment via a systematic investment plan:

Determine Your Risk Appetite

Before investing in mutual funds, it is mandatory for an investor to determine their risk-taking ability. For investors who have moderate risk tolerance, investing in a hybrid fund or a diversified large-cap equity fund might be a better option that investing in a small cap or midcap fund via SIP. 

Identify Goal and Duration

You must identify your investment objective accurately for starting a SIP. To reap SIP benefits to the maximum, make sure you have identified your investment goal beforehand. This will make it easy for you to decide the type of scheme, term, frequency, and amount of SIP that will suffice to achieve your investment goal.

Performance of Scheme

Investors must assess the performance of the scheme versus its benchmark and peers over different time periods like 3 years, five years, ten years and since scheme inception. This comparison of can help investors select mutual funds that are consistent performers over the long term.