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What Is SIP and What Are Its Benefits
21 Jun 2023

In a systematic investment plan, or SIP, fixed amounts of your funds are regularly invested in a mutual fund based on your preference. This is possible with the linking of your mutual fund account to your bank account, from which preset amounts are deducted. However, before taking an investment decision, you should know the meaning of SIP and its advantages for you. 

Why Opt for a SIP Investment?

In case you have just started out as an investor, you may be exposed to various investment instruments, such as stocks, conventional mutual funds, bonds, commodities, etc. So why choose a SIP? Among SIP benefits, is the fact that a SIP allows you to invest according to the specific financial requirements you need met. If you are wondering how a SIP differs from a regular mutual fund, you should know that in a mutual fund you have to invest a lump sum amount. With a SIP, you can invest small amounts at intervals according to your financial capabilities. These amounts are predetermined and based on your ability to provide funds for your investment. You can invest as little as Rs.500 at a time in a SIP. 

Advantages of SIP

When you consider any investment of a financial nature, you should take informed decisions about your future actions. Hence, you should be well aware of the advantages you get with a SIP investment. It may interest you to read about the benefits of a SIP below: 

  • Simple Plans - In a SIP, you can invest as little as Rs. 500 each time and watch your money multiply over a period. Your investment is convenient to monitor, and you don’t need much market know-how to track investments.
  • Flexible Investment - A great benefits of sip investment is the ease of getting to know how to invest in SIP and the provision of flexibility in a SIP. SIPs are open-ended investment funds and you can make withdrawals when you like. This means there is no fixed tenure where a SIP investment is concerned. Another aspect of the flexibility of SIP is that the amount you may invest is flexible. Amounts you allocate to a SIP can be reduced or increased. However, something to keep in mind is that you should have a long-term investment plan if you want to really create wealth. 
  • Start SIP and Earn Higher Gains - When you start SIP investment, you are sure to get high earnings as returns on investment. Comparing SIP to traditional fixed deposits or recurring deposits will make you realise that SIP yields almost double the profits. This beats inflation which is always on the rise. 
  • Interest that is Compounding - The inherent operational principle of SIP is that it works by compounding interest on any investments you make. Therefore, you may invest a small amount of funds, but will gain a huge return if you hold this for a long duration. 
  • The Meaning of SIP Means Emergency Funding - SIP represents an emergency source of funds, as this is an open-ended fund  with no fixed tenure. Hence, if you need a financial contingency plan, SIP can come to your rescue.

Concluding Words

If you want to learn how to invest in SIP, you should do some research at a brokerage like Motilal Oswal. Here, you can also open a Demat account and look through other fruitful ways to invest your funds so that you may see returns in the future. 

Related Articles: Investing in Mutual Funds is Now Easy with MO Investor App | Invest In Mutual Funds Online In 5 Simple Steps |  How to Analyse Mutual Funds for Big Returns | Tax Benefits of Investing in Mutual Funds | Mutual Fund - Need of Financial Plan | Upcoming IPO | LIC IPO

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