Know Why SIP is Considered as a Lucrative Investment Option

Oct 17, 2018 by

As one of the safest and discipline investment option, investing in a mutual fund through SIP (Systematic Investment Plan) has become the talk of the town. With a systematic approach towards investment, most of the investors are now keenly venturing into this option. If we talk about smart investment planning and long-term wealth accumulation then equity investment have given far better returns as compared to debt-based instruments. SIP offers investors a planned approach towards investment wherein they can invest a fixed amount of money per month at a predetermined date.

Further, in this article, we will elaborately discuss why SIP is considered as a lucrative option of investment.

  1. Financial Discipline-

Most of the investors consider SIP Investment because of the main reason of maximizing profits. However, apart from wealth creation, the most important benefit of investing through SIP is inculcating financial discipline in the lives of the investors. With a systematic investment plan, the investors are bound to invest a fixed amount of money at a predetermined date irrespective of the market condition.  As the investment amount is directly debited from the bank account of the investors, it gradually reduces the chance of missing the investment. SIP helps the investors to create a financial cushion by investing a small amount over a long-term period.

  • Achieve Financial Objective-

Without making a smart financial planning it often becomes difficult for individuals to achieve their financial goals of life. Whether it is a long term or short term goal, SIP mutual fund is a goal-oriented investment process in which the investors can start investing with a minimum of Rs.500 and can achieve their financial objective in the expected time. Moreover, most of the open-ended funds also offer a lot of liquidity. This allows the investors to withdraw their investment during the time of emergency.

  • Offers the Benefit of Power of Compounding-

The power of compounding means earning interest by reinvesting the interest earned. In power of compounding both, the first investment made and the interest earned on it is used to gain the interest for the next period. Thus, even if the investors invest a small amount regularly it can turn into a large corpus. With the power of compounding can earn higher returns on investment over a long term period. Hence, the sooner one starts investing in SIP, the larger corpus they can create over a long period of time.

  • Don’t Need to Timing the Market-

Most of the market experts advice to invest in an inflated market. However, in case of SIP one does not need to worry about timing the market. At the time when the market is high SIP provides an opportunity to the investors to buy less number of mutual fund units and when the market is low, the investors can buy a number of units in the same amount. Therefore, over a long period of time, the investor does not require to pay high prices for any units of mutual fund.

  • Diversifies the Investment-

Smart investors should keep all the eggs in the same basket. According to the market experts, one should assign their money in different asset classes instead of putting all the money into one asset. This process is known as diversification. Diversifying the investment by putting the money in multiple securities reduces the risk and fluctuations in returns. SIP offers the advantage of diversification. With a minimum of Rs.500, the investors get the wider exposure to make an investment in different asset classes according to one’s own requirement and suitability. Diversification of investment reduces the risk related to the firm and enhances the chance of wealth accumulation.

Wrapping it Up!

SIP investment is a lucrative way to achieve the long- term and short term goals of individuals only if they stay invested and committed regularly. With a flexibility and systematic approach towards investment, SIP helps investors to achieve maximum returns on investment with minimum risk involved.   However, in order to avoid any type of market volatility, it is important to have a proper knowledge of the market and be aware of the past performance of the funds.

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