A Systematic Investment Plan or SIP is an investment mode that allows individuals to allocate funds to mutual fund schemes periodically (weekly, monthly, quarterly, etc.). You can invest a small amount over a preferred duration to grow wealth by opting for a SIP. Before choosing this investment route, you must know the benefits of a Systematic Investment Plan in India. Knowing the advantages will help determine whether it can enable you to achieve your financial goals. Why should you consider SIP? A SIP is a smart investing option that allows you to start small and contribute a fixed sum to a mutual fund scheme without worrying about market volatility. Besides allowing individuals to stagger their investments over time, this investment mode offers multiple benefits, which make it an option worth considering. Let’s look at these benefits in detail. ∙Inculcates financial discipline Growing wealth over time and achieving the predetermined financial goals can be challenging if one does not have financial discipline. A systematic investment plan fosters financial discipline as you invest a specific sum regularly. By investing your funds via a SIP, you can build a corpus over time in a planned and systematic manner. Moreover, you can choose the auto-debit option to ensure the deduction of the investment amount from the selected bank account. ∙Rupee cost averaging Investors who choose the SIP route do not need to time the market. This is because SIP offers the benefit of rupee cost averaging. Per this concept, investors buy more units when a fund’s net asset value or NAV is low and fewer units when the fund’s NAV is high. Thus, the cost of buying the units averages out over the investment tenure. This benefit allows investors to earn reasonable returns over the long term without having concerns regarding market volatility. ∙The power of compounding Investment in mutual funds through SIP is highly rewarding because of the compounding process. Let’s look at an example to help you understand how it works. Suppose an investor allocated Rs. 5,000 in a mutual fund scheme during a year and earned 10% returns or Rs. 500 at the end of the year. Now, the person will start earning returns on the initial investment amount and the returns earned at the end of the year combined, i.e., Rs. 5,500. Simply put, the process involves reinvesting the returns earned to earn more returns. Thus, by investing a fixed sum over a certain duration, you can build a substantial corpus over …
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