Investing in mutual funds is one of the best ways to invest in the stock market. Since a mutual fund invests in a basket of different stocks, they provide you with some much needed diversification. Also, investing in one is very easy as well.
That said, considering the fact that the stock market is very unpredictable in nature, it is not advisable to invest a lump sum amount of money in a mutual fund. Rather, the better course of action would be to invest in mutual funds through a Systematic Investment Plan (SIP).
An SIP is a method of investing, where you contribute a sum of money each month, which is then invested in a mutual fund, much like a Recurring Deposit. At the end of the selected tenure, the accumulated fund value is returned to you along with the profits that you’ve made.
If this is something that you may be interested in, here are 7 reasons why you should invest in an SIP.
Many individuals struggle when it comes to saving or investing. However, with an SIP, that need not be the case. A Systematic Investment Plan automatically debits the funds from your account at the start of each month, thereby bringing some much-needed financial discipline into your life.
Finding the right time to invest in the stock market is very tough and can lead to more failures than successes. That said, with an SIP you don’t even have to think about trying to time the market. All that you need to do is continue to invest in it till the end of the tenure.
When you invest in mutual funds through an SIP, you might receive dividends. These dividends can be reinvested in the SIP again. When you continue to reinvest the returns that you get from an SIP back into it for a long-period of time, you get the chance to create exponential returns.
Some days, you might genuinely fall short of funds to contribute to an SIP. During such times, you can choose to pause the Systematic Investment Plan temporarily without any penalties or fines. And once you have a regular inflow of funds again, you can continue to start contributing once again.
One of the many advantages of investing in mutual funds through an SIP is the fact that you don’t have to start with large sums of money. In fact, many mutual fund SIPs allow you to contribute as low as Rs. 500 each month.
There will be times when the NAV of the mutual fund is high, especially when the market is on an upswing. During such times, an SIP will buy fewer units. And similarly, when the NAV of the mutual fund is low, which will be the case during a falling market, an SIP will purchase more units. When this is done over a long period of time, it will lead to rupee cost averaging and can bring down the overall cost of your investment.
The stock market is known to deliver exceptional returns over the long-run. And by staying invested in an SIP for at least a period of 10 years can help you get the benefit of long-term wealth creation. You get to fulfill all your dreams no matter what they may be.
As you can see, these are the 7 reasons why you should invest in an SIP. If you’re interested in starting one, you should first make sure that you have a demat account. To open a demat account instantly, get in touch with Motilal Oswal.
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