The simple difference between fixed deposits and mutual funds investments is that while the former gives higher interest rates the later gives higher returns. But as a trend we see that people make fixed deposits a regular exercise and mutual fund investments as irregular activity. The reason behind it is the lack or thorough understanding of mutual funds. The best way to learn is to know more in details about investing in sip.
What is SIP?
The full form of SIP is Systematic Investment Planning. When you are eager in investing in mutual funds, then rather than investing a larger amount of money as a one-time investment, you invest a fixed amount of money monthly. SIP can be defined as a periodic regular investment to gain higher returns from a mutual fund.
How does SIPs work?
Do thorough checks on the fund you want to invest so that you can assess a historical performance of the mutual funds. After talking to your fund manager start investing on a mutual fund for 10 years with a monthly investment of 5000 rupees or you can pay as low as 1000 rupees. There is no need to monitor your investment or check market fluctuations constantly. The higher money returns would be ensured at the end of the term period.
Benefits of SIPs
The power of compounding :
If you are investing 1000 rupees for 30 years in a mutual fund which will give you an expected return of 6 percent per year, then you have a chance of getting 10 lakhs at the end of the term period,. But if you choose mutual funds investment with an expected return of 15 percent per annum, then you can get 70 lakhs at the end of 30 years. Reinvesting in the same mutual funds is called compounding which is one of the biggest sip benefits.
Lighter on your wallet :
Most people will not belief that investing in sip on a monthly basis can be as low as 500 rupees. This breaks the myth regarding mutual funds that says that only with larger amount of money can mutual fund investments be done.
Investing in sip comes with flexibility :
when you choose a mutual fund with sip scheme, you as an investor have the liberty to choose the day of the monthly investment, the time span for the investment and the amount of monthly investment. At the same time, you have the opportunity to even hold your monthly investment in case of any monetary restraint and start it again.
Investors do not need to worry about the market :
Investment in mutual funds always comes with market risks but when you are investing in sip you do not have to worry about the ups and downs of the market neither do you have to check the performance the mutual fund from time to time.
The advantage of rupee cost averaging :
One of the sip benefits is rupee cost averaging. SIP allows you to buy more units when the NAV of your fund is low and vice versa only because you are investing steady money on a monthly basis. This helps you to average out the cost of your investment – known as rupee cost averaging. This diminishes your chances of losing money during market fluctuations.
If you have a higher financial goal – like buying an expensive real estate property or want to get lump sum amount of money during the time of your children’s college admission, then you should definitely start investing in sip. With a calculated amount and time period, you can get great financial benefits with lesser market risks.
“Mutual Fund investments are subject to market risks, read all scheme related documents carefully.”