SIP: Meaning & Benefits of Systematic Investment Plan

Systematic Investment Plan (SIP) is one of the most convenient modes of investment. It enables you to begin your investment journey by allowing you to invest even with a small amount. Investing in mutual funds through SIP can help you achieve your goals and instil financial discipline.

As per the data released by the Association of Mutual Funds of India, SIPs are a sought-after option for most mutual fund investors. Indian Mutual Funds have currently about 3.73 crore SIP accounts, and the total amount collected through SIP during March 2021 stood at Rs. 9,182 crore.

This article will help you understand the meaning and benefits of investing through SIP.

What is SIP?

A systematic investment plan is one of the modes through which you can invest in mutual funds. It enables you to invest a fixed amount of money periodically, monthly, quarterly, semi-annually or annually.

Now, let us understand the benefits of SIP investment.

Benefits of SIP Investment

• Pocket Friendly

SIP is ideal for people who do not want to invest a lump sum amount into mutual funds. With a SIP, you can invest an amount that can be as low as Rs. 500 per month. It is a pocket-friendly way of investing your money without having any burden on your wallet. Therefore, SIP suits investors of every budget. Moreover, people who do not have a regular source of income can easily opt for this mode of investment. A low investment at regular intervals ensures that you will be saving a part of your income with discipline.

• Compounding Effect

The most significant advantage of investing in mutual funds is that you get the opportunity to accumulate a higher corpus using the power of compounding. When you invest in mutual funds through SIP, you are reinvesting your returns in the same scheme. Therefore, your dividends can earn more income for you using the compounding effect. To gain maximum benefit of compounding, you must invest early and stay invested for a long time.

• Ease of Investing

SIP is one of the easiest and convenient ways of investing your money. If you do not know about the financial market and how it works, a Systematic Investment Plan is ideal for you. All you need to do is select a good fund and give standing instructions to your bank to manage your SIP investment.

• Rupee Cost Averaging

Systematic Investment Plan offers the benefit of rupee cost averaging. In simple language, rupee cost averaging means when the NAV is higher, your SIP investment will purchase lesser units of the mutual fund. Similarly, when the NAV is lower, the same instalment of SIP will buy more mutual funds. Therefore, you will be able to average out the purchase cost of mutual fund units over your period of investment.

• Emergency Fund

When you invest your money in open-ended funds, you can withdraw your SIP money at any point in time. This flexible facility of withdrawal can help you meet your expenses during an emergency.

• Protection from Volatile Financial Markets

SIP protects investors from the volatility of the financial markets. It saves the investors from speculation and panic decisions. When the markets are volatile and fall, you can accumulate more units of mutual funds at a lower cost. Thus, SIP protects the investors from speculation and helps procure more units at lower prices.

• Inculcates Discipline

SIP is known to bring discipline to the investor. When you invest in SIP, a fixed amount of money is deducted at regular intervals from your bank account. Here, your investment is not dependent on your willingness or other factors. SIP investment ensures that you regularly save and invest money to meet your financial goals.

The above mentioned are some of the benefits of investing in a systematic investment plan.

There are many mutual fund schemes available in the market. All you need to do is select the fund that meets your requirements. If you do not have sufficient knowledge of the financial markets, you may seek the assistance of experts and invest in mutual funds schemes according to your long-term goals.

ICICI Securities Ltd.( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Centre, H. T. Parekh Marg, Churchgate, Mumbai - 400020, India, Tel No : 022 - 2288 2460, 022 - 2288 2470. AMFI Regn. No.: ARN-0845. We are distributors for Mutual funds. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully. The contents herein above shall not be considered as an invitation or persuasion to trade or invest.  I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon.