The hardest part of any investment is the beginning. No matter how much you know about the advantages it carries, it is still hard to put a portion of your income for future use. More than that, it could be confusing for some people to find an investment option that matches their investment horizon.
Systematic investment plans (SIP) is an investment scheme that could put you at ease here. So let us learn about systematic investment plans and how SIP can complement your investment strategies.
What is a mutual fund?
Mutual funds are an investment scheme designed to make investing easier. Instead of picking securities on your own and investing in them individually, the fund creates a portfolio according to the theme of the fund. The money invested in the fund will go towards investing in the portfolio then. A mutual fund may contain multiple asset classes, including equities, debt securities, etc.
Ways to invest in a mutual fund
Now, there are two ways in which you can invest in a mutual fund. You can either invest a lump sum in them or through monthly installments. Both these investment styles are helpful in different ways. For instance, if you have a corpus to park or grow, you will need to invest a lump sum. On the other hand, if your goal is to build a corpus over a long time slowly, SIP can be a beneficial option.
Systematic investment plans
As said above, SIP is an investment option where you can invest a small amount of money every month to build a respectable corpus over time. However, the greatest advantage of choosing SIP is that it allows you to start with an amount as low as Rs.500. Below are a few reasons why SIP could be a good option for you.
Disciplined approach
We have talked about how hard it is to often start investing. What is equally hard is to keep investing for a longer period. SIP, with its autopayments, could be a solution for this. If you set up auto payments for SIP, the investment amount would be debited from your account automatically every month. This introduces a lot of discipline to your investment.
But that doesn’t mean you are stuck with your SIP plan forever. You can change the monthly amount and even cancel the autopayment easily as well in just a few steps.
Compounding
Compounding is the phenomenon in which the profit that your investment has generated is reinvested into the original corpus so that the compounded corpus earns profit thereafter.
For instance, if you invested Rs.10,000 and your profit at the end of the day is Rs.100, the compounded corpus of Rs.10,100 will start earning a profit, not the initial Rs.10,000.
Start small
A problem many people have with investing is the lack of a considerable corpus. SIP solves this problem too. You can start with an amount as low as Rs.500 and still slowly grow your corpus over time.
Market knowledge
All investments need some market knowledge. But when you put a lot of money into a single investment, you may need to research and find the right instrument and time. While it doesn’t mean that SIPs don’t require research, they tend to demand less, making it easier for beginners as well.
Investing in mutual funds through SIP is a time-tested investment option. But you need to choose the right fund that matches your investment horizon to get the best out of your investment. Hence, make sure you figure out your goals and risk appetite before you begin investing.
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