by Whether you are a businessman, student, or corporate professional, investing is an integral part of financial planning. People save a portion of their income while investing the rest to achieve return and build wealth. Systematic Investment Plan (SIP) is one such method of investment that allows saving and investing at an early age to create long-term wealth.
Here is a comprehensive blog on SIP and the various advantages it offers.
What Is An SIP?
A Systematic Investment Plan or SIP is a disciplined way of investing. This systematic method of investment helps individuals build wealth consistently by investing money at regular intervals.
SIPs are automated through an auto-debit feature which allows automated withdrawal from bank accounts into the selected investment plan.
A determined amount is regularly deducted from a bank account and invested in the selected mutual fund. Upon deposition of the amount, the investor receives a certain number of units in that mutual fund. This number is determined by the Net Asset Value (NAV) of the scheme on a particular day.
Additional units of the scheme can be acquired with every SIP installment. As the NAV fluctuates, the SIP amount buys fewer units when the market is high and more when it is low.
SIP plan calculator can be helpful here to forecast the maturity value based on the investment period and expected rate of return.
Why SIPs are Popular?
SIP comes with a unique number of advantages. Here are 5 reasons that SIPs are considered new cool and why people invest in mutual funds:
- Allows Direct Investing
SIP is a consistent method of investing. It disciplines an investor by investing a certain amount at regular intervals.
This regular investment technique compliments the rupee cost-averaging method inculcating a systematic investment habit.
2. Safety Against Market Volatility
Safety against market volatility is offered through rupee cost averaging. Rupee cost averaging saves against ups and downs by spreading the investment over a period of time.
A higher price will buy a smaller number of units and a low price will buy more units. This balances overall costs and lowers the impact of market volatility.
3. Flexible Investment
SIP is a flexible form of investment in which an investor can increase or decrease the amount. This decision is made according to an investor’s current financial situation and his purpose of investing.
The duration of depositing installments is also decided according to an investor’s convenience.
4. Long-Term Wealth Creation
A person can start investing in SIPs at an early age. This makes compounding advantageous for long-term growth. It averages out market volatility, minimizes risk and encourages a disciplined investing approach.
Make sure that the motive of investment is clear so that you can make focused savings.
5.Easy Management of Small Investments
The minimum amount for a SIP installment is Rs 500. However, there is no upper limit. An investor can invest as much as he or she wants. However, it is a must to make payments regularly for the duration of the plan.
Consistent contributions over time boost initial investment and returns generated. This results in earning higher gains through compounding.
Assessing personal financial situation and risk tolerance is crucial before investing.
Conclusion
Moreover, understanding the way SIPs work is essential to make informed and confident investment decisions. Mutual funds SIPs allow an investor to start or halt investments at their convenience. This method of investment builds long-term wealth, is flexible, and helps reduce the impact of market fluctuations on an investment portfolio. Make sure that you use it wisely and smartly to generate wealth.
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