According to data released by the Association of Mutual Funds in India (AMFI), the total amount collected by mutual funds through SIPs (systematic investment plans) in April 2024 was ₹20,371 crore. Indian mutual funds currently have around 87 million SIP accounts – a figure that demonstrates the popularity of the SIP mode of investment in India. Read on to know the benefits of SIP investments through investing in the best mutual funds.
5 Benefits of SIP Investments
SIP (Systematic Investment Plan) investments in mutual funds offer several advantages for investors. Here are key benefits of SIP investments:
Cost Averaging
Investing through systematic investment plans helps you benefit from rupee-cost averaging. On purchasing more mutual fund units when the fund’s NAV (net asset value) is low and fewer units when the NAV is high, the cost of purchasing those fund units averages out. Therefore, you don’t have to time the market thanks to the benefits of the Rupee-Cost Averaging.
Grow Your Returns
Investors can earn higher returns by leveraging the power of compounding; that is, earning interest on interest. You can leverage the power of compounding by investing regularly through SIPs, significantly increasing your returns multiple times.
Develop a Disciplined Approach to Investing
One of the major advantages of SIP investments is that they help investors develop a disciplined approach to investing. If you consistently invest in an SIP scheme regardless of market conditions, you can significantly grow your returns over time.
Increased Flexibility to Investors
Systematic investment plans offer a lot of flexibility to investors. You can start investing with a minimum amount of ₹ 500 monthly and can redeem your mutual fund units at any time. Furthermore, there is no limit to the duration of your mutual fund investments. You can also increase your SIP contributions by opting for the step-up SIP option.
Grow Your Savings in a Disciplined Manner
An SIP investment is an efficient method of goal-based investing. You can consistently contribute to a mutual fund scheme through SIP investments and meet your financial goal in time. Since the nature of financial goals is subject to change, you can also increase your SIP contributions over time to meet your financial goals on time.
A Stepwise Plan to Effectively Invest in SIPs
- Decide on a financial goal: You must note down your target investment amount after deciding on a financial goal.
- Use an online SIP calculator to calculate your returns on maturity: You can use this free, online tool to make the most of your SIP investments.
- Analyse your risk appetite and liquidity-related requirements: If you want higher liquidity from your mutual fund investments, you can choose a debt mutual fund.
- Choose the SIP mode of investment: Finally, you must choose the SIP mode of investment to earn significant returns over time.
In Conclusion
These benefits make SIP investments an attractive option for investors looking for a disciplined and convenient approach to wealth creation. SIP investments help you benefit from rupee-cost averaging, offer flexibility, and help you leverage the power of compounding. They also help you significantly grow your savings. You must use an SIP returns calculator before investing in SIPs to know your ideal SIP amount and tenure.
