Systematic investment, quite popular among retail providers, provides one with a simplistic way to invest in mutual funds or stocks at fixed periods of time, at regular intervals.
You, as an investor can choose a monthly, quarterly or yearly plan, depending upon your needs and preferences.
The performance of the investments typically depends on the market, and regular small investments can lead to attractive rewards in the future.
The wealth gained from SIP investment is a result of the compounding effect, which occurs due to the reinvestment of returns over an extended period of time.
The power of compounding is significant, and it is often referred to as the “eighth wonder of the world”, as it can lead to exponential growth over time.
Contrary to lump slumps, SIPs can help you reach your investment goals in a planned and systematic manner in the long term.
This article covers the following:
- SIP v/s Lump Slump Investment
- Benefits of SIP
- Final Thoughts (Covering disadvantages of SIP)
SIP V/S LUMP SLUMP INVESTMENT
In lump slump investments, you are required to make huge investments in one go to get significant returns, which highly contrasts with the periodic investments made under SIP.
Systematic Investment Plan is a disciplined strategy where investors invest a predetermined sum of money into their preferred investment instruments like mutual funds and stocks, etc.
It is a very convenient way to invest, and one of the best benefits of Systematic Investment Plan is the rupee-cost averaging.
BENEFITS OF SYSTEMATIC INVESTMENT PLAN (SIP)
A. RUPEE-COST AVERAGING
As mentioned previously, one of the greatest benefits of SIP is rupee-cost averaging, which basically means that investors are able to buy more units when the prices are low and lesser units when the prices are high. Rupee-cost averaging leads to a better long-term result as investors can accumulate more units at lower prices, thus, reducing the impact of market volatility.
B. FLEXIBILITY
SIPs offer flexibility to the investors, in terms of selecting the amount of investment as well as the time period. You may start with a small amount and work your way up from there, or start with a larger sum of money, depending upon your preferences. In India, it is possible to start your SIP journey with an investment as low as Rs. 500/-
C. DIVERSE INVESTMENTS
SIP allows you to invest in diverse portfolios. Because of this, you can minimize the risk of being too dependent on just one asset, and strengthen the potential of long-term growth.
D. EASY AND MANAGEABLE
SIPs are generally very easy to set up and manage. They are hassle-free which makes the investor stress less, as they help mitigate any market timing risks, because of their consistent and regular nature. They do not get affected by short-term fluctuations, and you will be able to accumulate wealth by investing over an extended time.
CONCLUSION
There are several advantages of a Systematic Investment Plan, yet it is always recommended to check if you will be able to meet your financial goals, and what is the sum of money you’d be starting your investment journey with.
If you are confused as to where you should start, it is always recommended to consult a financial advisor, as they will be able to clarify any doubts you might have regarding SIPs and your personal financial goals.
SIPs are usually suited for those who earn a regular income, as irregular living can make it harder for an individual to invest consistently over a period of time.
Moreover, breaks in between set payments are not possible, because of which, cancellation of the investment would be the only option, resulting in penalties.
All in all, SIP is a mechanical investment program, with an abundance of advantages under its belt.