Top 5 Reasons Why You Should Consider Investing Through SIP for Higher Returns
- DetailsWritten by PolicyBazaar -
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Updated date : 03 January 2020
The popularity of systematic investment plan (SIP) has increased tremendously in the last few years. As one of the disciplined and safest options of investment, most of the market experts suggest investing in mutual fund through SIP. If we talk about long-term wealth accumulation and smart investment planning then equity investment has given far profitable returns as compared to the debt-based investment instrument.
However, before investing through SIP it is important to know what s SIP. Systematic Investment Plan (SIP) is a process through which one can make an investment in the mutual fund. SIP offers a planned approach to investment wherein the investors can invest a specific amount of money per month at the predetermined date.
Further in this article, we will elaborately discuss the top 5 reasons why you should consider investing through SIP for higher returns.
Most of the investors prefer investing through SIP because of the benefit of maximizing profit. However, besides the advantage of wealth creation, the most important perk of investing through systematic investment plan is that it inculcates the habit of financial discipline in the investor’s life. With SIP, the investors are destined to invest a specific sum of money at a predetermined date regardless of the market conditions. As the amount of investment is auto-debited from the investor’s account, it simultaneously reduces the chance the not making the investment. SIP offers the benefit to the investors the investors to create a financial backup by investment a small sum of money over a long period of time.
Achieve Financial Objective-
In order to achieve the financial goals of life, it is significant to have smart financial planning. Whether one wants to make a short-term or long-term investment, SIP is a goal-oriented process of investment. The investors can start SIP by making a minimum monthly investment of Rs.500 and can invest up to the maximum as much as they want. By making a small investment over a long-term period one can achieve their financial goal in the expected time. Besides this, there is a lot of open-ended funds which offers a lot of liquidity. This allows the investors to withdraw their investment at the time of emergency.
Offers the Benefit of Power of Compounding-
Through the benefit, of power of compounding the investors can gain interest by reinvesting the interest earned. In power of compounding the first investment made by the investors and the gained interest in it is used to earn the interest for the next period. One can also take help of the SIP Calculator in order to estimate the maximum return on investment. Therefore, the benefit of the power of compounding helps the investors to turn the small investments into a large corpus. Hence, the early an individual starts making SIP investment, the larger wealth they can accumulate over a long-term period.
Don’t Need to Time the Market-
Mostly, the market experts advise the investors, to invest when the market performs well. However, in the case of SIP, the investors do not need to worry about timing the market. Most of the investors often invest in stocks when the price is low and sell them when the price is high. Thus, timing the market is not only time consuming but also riskier. On contrary to this, by the advantage of rupee cost averaging one just need to invest a pre-determined amount continuously for a longer period of time. Since the amount invested by an individual is constant one can buy more units when the price is low and lesser units when the price is high which in result will lower the average cost.
Diversifies the Investment-
Investors who want to do smart financial planning should keep all the eggs in the same basket. As per the market experts, the investors should allocate their money in diverse asset classes instead of putting all the money into one asset. The process of putting your money in different asset classes is known as diversification. By diversifying the investment and allocating the money in different investment securities reduces the risk of fluctuation in returns. SIP offers the advantage of diversification. With the minimum investment of Rs.500, the investors get a bigger exposure to investing in different investment securities as per their own suitability and requirement. It helps to reduce market risk and increases the chance of wealth creation.
Wrapping it Up!
If you stay committed and invest regularly through SIP, then you will be able to achieve your short-term and long-term financial goals easily. With a systematic approach and flexibility of investment, SIP helps investors to achieve maximum ROI with minimum risk involved. However, in order to gain maximum profit through SIP investment, it is also very important to have a proper understanding of the market and be aware of the funds' past performance.
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