What is SIP Investment, Its Benefits & Features?

SIP is a style of investing in mutual funds. It allows an investor to invest in a mutual fund scheme in a financially responsible way. SIPs allow investors to make relatively small individual investments starting from Rs. 500 per month in mutual fund schemes over a long period of time to create a large investment corpus over time.

SIP investments have become popular in recent times as it allows Mutual Fund investors make disciplined investments without having to worry about prevailing market conditions. Due to the reduced impact of market volatility and market timing, investing via SIP has made it easier for everyone to start investing in Mutual Funds.

To better understand the various SIP benefits you need to know how a SIP works. When investing in a mutual fund scheme through SIPs, an investor makes a decision to invest a specific amount of money at pre-determined intervals such as monthly, quarterly, weekly, daily, etc.

This amount gets automatically deducted from the investor’s bank account via standing instruction submitted with the bank. Once the amount has been deducted, it is invested in the Mutual Fund chosen by the investor and scheme units get allocated to the investor based on the day-end Net Asset Value (NAV) of the mutual fund.

There are many reasons for the growing popularity of SIP. Let’s take a look at some key SIP benefits that investors can get:

• Rupee Cost Averaging: This is perhaps the most important benefit that SIP offers to investors. As the investment amount is fixed, when markets are high, fewer units of the Mutual Fund are purchased, while more units are purchased when markets correct. This averages out the cost of purchasing Mutual Fund units which is known as rupee cost averaging.
  
  Due to this SIP benefit, investors get minimally impacted by market conditions if they continue investing over the long term.
• Better Investment Disciplined: Another advantage of SIP is that it makes investing in mutual funds more disciplined and organized. While on the one hand, the investor keeps adding investments periodically, SIP also ensures that the investor’s finances are not strained when making the investment.
• Small Individual Investments: One of the key SIP benefits is that you can start with amounts as small as Rs. 500 per month. This makes SIP investments affordable for even the smallest investor.
• Convenience: Being an automated process facilitated by standing auto-debit instructions provided to the bank makes SIP a convenient way to invest. Furthermore, the automated process ensures that you never miss a single chance to add to your investments.
• Flexibility: Another important SIP benefit to consider is its flexibility. Investors can pause or cancel existing SIP or a start a new SIP with minimal restrictions. This flexibility ensures that mutual fund investments can be increased, decreased or even stopped by the investor based on his or her financial situation.
• Power of Compounding: This is one of the SIP benefits that results from staying invested for the long term. Using the SIP route, you can start investing earlier in life with smaller amounts and stay invested longer. This ensures that the returns from these small investments get more time to grow through the power of compounding so that you can create a large investment corpus with relative ease.

While SIP benefits are many, you do have to consider certain factors before you start making mutual fund investment via a systematic investment plan: