Looking to invest your hard-earned money? Here are 4 reasons why investing in a Systematic Investment Plan is exactly what you need to see your money grow over time.
Sometimes, being on autopilot mode simplifies life. No time and effort is lost in making decisions for scenarios that are unlikely to change. SIPs or Systematic Investment Plans do the same for your investments.
Here are some reasons why you should look at investing in Mutual Funds via the SIP mode:
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Instils the discipline of investing
First up, SIPs give you the behavioural benefit of making investments a habit. Savings usually happen if (and only if) there are leftovers from the month’s spending.
The advantage of investing in an SIP is that every month a fixed amount moves from your bank account to the fund, where it grows over time.
Moreover, an SIP ensures your investment outgo is linked to the normal income and expense cycle. For example, you receive salaries on a monthly basis and most bills and dues are also charged on a monthly basis. So having a monthly SIP makes an investment a part of your regular outgo and lifestyle.
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You can invest small amounts
You can start an SIP with as little as Rs. 500 every month. This can be increased to larger amounts as your income and savings ability increases.
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No worry about timing the markets
The success of lump sum investments, no matter what the amount, depends to a large extent on the timing. If you buy a large number of units when the markets are expensive, your returns could suffer. Average investors may not be able to time markets well.
As a result, they may wait endlessly for markets to correct themselves before investing, thus losing out on good opportunities to enter the markets. Or they might invest when markets are overvalued and exit in panic when they correct themselves, resulting in losses.
This worry is reduced with SIPs, since you’re investing smaller amounts over a period of time, at different market valuations.
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Benefit from cost averaging
In the months when markets are expensive your money buys fewer units and when they are cheap you get more number of units. Thus SIPs help in averaging the cost of investment.
Even when you have lump sum amounts available for investing, say from a windfall gain like a bonus, arrears, etc., taking the SIP route is better. Invest it over a period through a 6 month or 1-year SIP, depending on the total investment amount.
Mature investors with experience and knowledge may choose to invest lump sums when they think markets are priced cheaply. Yet for the majority, SIPs work well due to rupee cost averaging.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
This post is an investor education initiative sponsored by ICICI Prudential Mutual Fund.