Convenience is one of the most sought-after features when it comes to investment. A convenient investment option lets you invest in the scheme you want the way you want. The situation of India is very important to understand here. India has a large middle-class population.
In India, the term middle class refers to those whose annual income falls somewhere in the range of Rs 5 lakh and Rs 30 lakh. One out of every three Indians falls into this category, according to a 2022 survey by PRICE (People Research on India’s Consumer Economy), an economic research outfit. Hence, convenience when it comes to the investment amount is important. Systematic investment plans (SIPs) are helpful here. Let us learn the advantages of a SIP and see how you can invest in it.
What is a SIP?
Systematic investment plans or SIPs let you invest in a mutual fund at regular intervals rather than investing a large corpus in one go. When you enroll in a SIP, a predetermined sum is automatically deducted from your savings account each month and put into the mutual fund of your choosing.
With a SIP, rather than investing everything at once, you invest a little at a time. Therefore, starting a mutual fund investment using SIPs does not need a hefty initial investment. SIPs also help you achieve investment and financial discipline through a systematic way of investing. The biggest benefit of investing through SIPs is that it lets you create a corpus of your dreams with time by investing an amount that you can afford. But the benefits of investing through SIPs don’t end here. Below are some more advantages of SIP investments that make it a lucrative option.
- The power of compounding
The compounding effect is one of the biggest appeals of a SIP. With each installment, you’re able to purchase additional units, which in turn increase your returns. Here, compounding happens when the returns from the investment are reinvested into the corpus so that the compounded corpus will start earning profit. If you start contributing early and remain involved for a long period, you could harvest maximum profits from the SIP.
In addition to the flexibility of starting and stopping a SIP at any moment, its ability to let you skip a payment, or change the size of an SIP are also examples of this investment strategy’s flexibility. It also allows you to withdraw any amount, at any time, with no penalties. Because of this, it may function as an emergency savings fund, with the money being sent to the designated bank account upon withdrawal request. In addition, certain SIPs, like those in Equity Linked Savings Scheme, may help you save on taxes as well. Some plans even let you invest every two weeks or every fortnight, and there’s a feature called step-up SIP that lets you gradually raise your investment amount.
- It is pocket friendly
Since you are not investing a large sum all at once but rather a little amount on a regular basis, an SIP is easy on the wallet. You may adjust the monthly SIP amount according to your needs and finances, including skipping payments if you’re short on cash. If you are just beginning your career or going through a cash crunch, you can start investing with as little as Rs. 500.
How to invest in an SIP?
You can invest in SIP of your choice through either the fund website or the broker. Regardless of the platform you choose, you can complete the whole process online given you have all the documents ready. You just need to go to the fund or broker website and follow the instructions.
Investing in a mutual fund through SIPs lets you invest in a way that works for you. But at the same time, understand that SIPs are just a tool to invest in mutual funds. The success of your investment lies in choosing the right mutual fund for you as well.