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Benefits of investing through SIP

5 benefits of investing through SIP in Mutual Fund

Investing through Systematic Investment Plan (SIP) in mutual funds has become a popular method to invest in equity funds. Even companies are promoting investment through this method as it decreases the risk for investors and give them the benefit of investing regularly without thinking about the right time of jump in.

Know about SIP

SIP is not a product or fund, it is a process of investment in mutual funds. The investment in made in equal installments in a fixed period of time, generally monthly. Since investment is made in mutual funds, the return depends solely on the performance of the mutual fund.

Benefits of investing through SIP

  1. Since investment is made at different point of times and thus at different market levels, the cost of investment is averaged and it reduces the risk of entering the market at high level. Also a great tool to invest regularly a part of your monthly savings.
  2. Also when one invest directly in the market, its hard to maintain the investment discipline and investors decision is affected mainly by the so-called expert’s advice and advice from family and friends.
  3. It also provides convenience to persons who doesn’t have enough time to analyze the market trends and maintain their portfolio.
  4. Share market is subject to high fluctuations which is hard for a layman to track with limited knowledge and resources. Professionals which are giving their full time to track market can better assess stocks and market direction.
  5. You can invest as minimum as Rs. 500 per month through a SIP to get the benefits of high return of equity market as well as to limit the risk associated with equity market.

How you should Invest

Invest for a minimum period of 5 years to fully reap the benefits of SIP. Longer the period of investment, the higher the chances that you sell your units with a handsome amount of profits.

There are debt funds in the market as well which have lower risk in comparison with equity fund as they generally invest in government and private sector debentures/bonds. Their return is generally higher than Fixed Deposits but lower than equity fund over a decent time period.

SIP or Single time investment

If you are not a professional trader and investing only to get a better return on your savings then you are strongly advised to invest through SIP in a mutual fund which have good history of returns. You can find top performing mutual funds here.

[Photo credit: Lendingmemo]

About Rohit Pithisaria

I am a Chartered Accountant based in Jaipur. I do have interest in Income Tax and managing the income tax related section on TaxAdda. You can email me on info@taxadda.com for your queries related to income tax.

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