Understanding about benefits of SIP requires some knowledge of SIP first. In simple words, Systematic Investment Planning popularly referred to as SIP is a systematic approach to investments offered by Mutual Funds through which an Investor can invest a fixed amount as low as 500 in fixed intervals which can be monthly, quarterly, or annually.
It is more or less similar to a recurring deposit. SIP has gained a lot of popularity and has become a very common method used by Investors to invest in Mutual Funds because they inculcate Financial discipline and build wealth for the future.
Another reason people prefer SIP is that it helps in investing in a disciplined manner without worrying about market volatility and timing the market.
If you are looking to enter the market for the long term then the best way to do it is through Systematic Investment Planning. Long-term investing needs you to start early in order to maximize the end returns.
Why invest in SIP?
Here are the benefits of SIP–
Investing in mutual funds through SIP will inculcate the discipline of investing regularly. The amount automatically gets debited from your account on the decided date.
So this means instead of spending all of the money you earn, there is some part which no matter what is being invested. By doing this, after earning something you are first indulging yourself in saving and later spending.
On the other hand, most of the time we focus on spending first but in this case, you are compelled to invest first no matter what. Such a habit will come in handy at the time of financial emergencies.
Another benefit that comes under the benefits of SIP is that Systematic Investment Planning is convenient in so many ways.
Firstly, everything is hassle-free.
You do not have to manually go for payments each time, you can directly instruct your bank to enable auto-debit from your account.
Another thing is that unlike other investment plans you do not have to keep regular updates of the market since the investment is for the long term.
This means your majority of the work is done right in the beginning by choosing the mutual fund, after that everything can be automated for as long as you wish to.
One of the major reasons people go for SIP is that it can be started with an amount as low as 500. This means you can take risks according to your capacity.
It does not require you to have any extra savings and you do not even have to cut down on your other expenditures.
Even if your savings are not a lot, you can benefit from the growth. When you just begin to earn, your savings are really low and expenditure high but even if little savings are helpful, it is a really good idea to invest in mutual funds through Systematic Investment Planning.
Benefits of Compounding-
It is almost impossible for wealth creation to just happen overnight, it obviously takes time. So if you want to benefit from the power of compounding you need to start early.
Warren Buffet started investing when he was just fourteen but he could benefit from compounding only after he turned 50. But first what is compounding?
Simply put, compounding in mutual funds is the interest earned on the interest or the profits earned on the profit from your investment.
The power of compounding helps smaller investments to grow in the long run.
Read More: 6 Amazing Benefits Of Investing
You can stop or skip anytime you wish to
It could not get more convenient. You can stop the payment whenever you want to. There is no fine or penalty, unlike the recurring deposits which fine you for dropping out in the middle.
After stopping, you can either get back all of your money or just let it continue to remain invested. Not just stopping, you can skip the payment too.
If in some case, you do not have enough balance in your account or you have any extra expenditure, you can choose to skip the payment for that particular time and continue from the next time onwards. This is another huge advantage over recurring deposits.
How to invest in Systematic Investment Planning?
Here’s how you invest in Mutual Funds through SIP:
Understand your Risk taking capacity and your objectives of Investment-
No matter where you invest, the first thing you should consider is your risk-taking capacity.
If you want higher returns, you need to take bigger risks but if you cannot afford to put a lot of money at stake, you should take smaller risks.
Then the next thing you should put in place is the reason behind investing.
Is it a bigger life event like marriage, education or is it just for the sake of investing? These two factors play a major role in the selection of your plan.
Choose a Mutual Fund-
Now based on the above-mentioned factors, choose from the mutual fund schemes available in the market. The scheme selection should be based on your risk appetite and personal financial plans.
After you select the scheme, you will have to go through the procedure of filling the application form, submitting a cheque, providing the canceled cheque, residential address proof, and KYC form.
Select the Date and decide the duration of SIP-
Since SIP requires you to pay in fixed intervals, the amount will automatically be debited from your account. For the same, you need to select a date according to your convenience. It will be happening for as long as your SIP is.
Decide the mode-
The next important decision is whether you want the SIP to be offline or online. Both online and offline modes are available.
Once you have invested in SIP, stay invested till the end.
Systematic Investment Planning is the best way to earn in the long term and the best part is it does not require you to stay updated on a daily basis, so you can stay worry-free till the end of your investment.