Advantage of SIP (Systematic Investment Plan)

by Shakti Singh Dulawat on July 21, 2010

Mutual fund investment is undoubtedly one of the best ways to save your money and at the same time earn a good fortune and secure your old age with a prosperous retirement benefits.
Friend always remember word of Warren Buffet -
“Rule No. 1: Never lose money.
Rule No. 2: Never forget rule No. 1.”
This time I will discuss with you some concrete ways and means in order to really save a lot and get something from your current financial status.

What is SIP?
Let us begin with one of the basic or fundamental ways of earning and saving namely the SIP.  What then is SIP? SIP simply means, Systematic Investment Plan. Well, you might think that this is one such way of earning from your mutual fund or just one type of mutual fund. Well no, instead it is a method of investing in a mutual fund. SIP will give the signal to the investor to buy certain units from the mutual fund stocks on a particular given date every month of the year. The investor then will decide the amount together with the method of the mutual fund itself. This would simply imply, that if you wish to save one rupee daily then in just a matter of 30 days you will be able to save and get 30 rupees.  Hence this is one principle in saving money.  Therefore, in saving money, we need to follow certain methods and SIP is one of these effective methods, no doubt.

Why invest using SIP?
Investing through SIP in a mutual fund indubitably is the key solution in order to avoid or prevent the loopholes of equity investment and yet, continually enjoythe high returns of investment.  Isn’t it great therefore to invest using this effective strategy of SIP?  Obviously, yes!  And not only that, it makes all the more sense today when the stock markets are booming and are tempting to really invest.

1. Tension free investment.
Experts and other well versed people in this business who will definitely manage your money and other forms of investment is one of the key advantages of investing through a mutual fund. They regularly carry out extensive research – on the company, the industry and the economy – thus ensuring informed investment.  This then is one big advantage in view of investing your hard earned money.

In addition to that, they regularly track the market. Thus, for many of us who do not have the desired expertise and are too busy with our vocation to devote sufficient time and effort to investing in equity, mutual funds offer an attractive alternative. Therefore, indubitably this type of business is indeed, a  tension-free form of investment.

2. SIP invest money in different-different sector
Another advantage of investing through mutual funds is that, even with just small amounts we are able to enjoy the benefits of diversification. Huge amounts would be required for an individual to achieve the desired diversification, which would not be possible for many of us.

3. Its well-regulated
It is interesting to note that the mutual fund industry is well regulated both by Sebi (Securities and Exchange Board of India) and AMFI (Association of Mutual Funds in India). They have, over the years, introduced regulations, which ensure smooth and transparent functioning of the mutual funds industry.  Moreover, you can also change mutual fund time by time, switch in different mutual fund, this is one of the big profit.

4. Does not after our monthly budget
Furthermore, with SIP we can invest small amounts (Rs 500-Rs 1,000) periodically in Mutual funds as against larger one-time investment required, if we were to buy directly from the market. In this way, an investment does not appear to be a burden every month. On the other hand, to prevent losses in volatile markets, investing in Sips is the best option as every month you may get an opportunity to buy at lower levels.

5. Reduces the average cost
Another advantage in using SIP is the fact that it reduces the average cost.  In SIP we are investing a fixed amount regularly. Therefore, we end up buying more number of units when the markets are down and NAV is low and less number of units when the markets are up and the NAV is high. This is called rupee-cost averaging. In addition, we would stay away from buying when the markets are down. We generally tend to invest when the markets are rising. SIP works as a good discipline as it forces us to buy even when the markets are low, which actually is the best time to buy.

6. Helps to fulfill our dreams
Finally and the best part of all is the fact that with the use of SIP, it will make our dreams come true.  The investments we make are ultimately for some objectives such as to buy a house, children’s education, marriage etc. And many of them require a huge one-time investment.As it would usually not be possible to raise such large amounts at short notice, we need to build the corpus over a longer period of time, through small but regular investments. This is what SIP is all about. Small investments, over a period of time, result in large wealth and help fulfill our dreams & aspirations.

Below are our best reading on mutual fund:

As a conclusion, you should never hesitate getting for yourself a mutual fund and eventually use SIP as a tool to save more, invest more and earn more.  There are other ways to facilitate more benefits earning from mutual fund but using the SIP is simply the best, most recommended, tested and simply efficient. Now think for the investment and select best mutual fund. Happy Investing.

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