The best way to create long term wealth is to inculcate the discipline of regular investing. And to do so, you can consider starting a Systematic Investment Plan. SIP is an easy and hassle free tool that has made investment in mutual funds a lot easier.Most retail investors are opting for SIP over lumpsum investing because of a number of reasons. If you are planning on investing in mutual funds with the hope of earning long term capital appreciation, you too should consider starting a SIP in mutual funds. To understand the top 6 reasons to start a SIP, continue reading:
- Auto debit option
The best part about starting a monthly SIP in mutual funds is that investors have the option of allowing auto debit. The first step towards starting a SIP is to become KYC compliant. Once you complete all the pre-investment formalities and become KYC compliant, you can instruct your bank to allow auto debit.
- Save at periodic intervals
Once you start a monthly SIP, this enables the fund house to debit the predetermined SIP sum from your savings account and this amount is electronically transferred to your mutual fund portfolio. This way, the investor ensures that he/she saves and invests fixed amounts at regular intervals in a mutual fund scheme of their choice.
- Enter the market anytime
You can get a taste of how the equity markets function when you start a monthly SIP in equity funds. One doesn’t have to wait for the right time to enter the markets because there is no such thing as ‘right’ time to invest. And with SIP, anytime is a good time to invest in mutual funds because SIPs allow invest to benefit even when markets are underperforming. Rupee cost averaging is an investment technique where investors are allotted less units when the NAV is high and more units when the NAV is low.
- SIPs offer immense flexibility
The best part about SIP investing is that it is flexible in nature. Investors can start or stop their existing SIP at any point of time. There are no penalty charges for stopping your SIPs midway. They can also increase or decrease their monthly SIP sum to suit their investment objective and income needs. In case you don’t have the resources to carry out your current month’s SIP, you can even skip and continue investing the in the following month.
- Choose an amount you are comfortable
Apart from being immensely flexible, SIPs also give investors the liberty to choose an amount they are comfortable investing at regular intervals as long as this amount is not lesser than the minimum investment amount mentioned in the Scheme Information Document (SID). There are some mutual fund schemes who have a minimum investment amount of Rs. 500 per month which makes it possible for a large audience to earn capital appreciation from mutual fund investing.
- Power of compounding
Power of compounding is yet another investment technique which mutual fund investors can benefit from if they continue investing in mutual funds via SIP for the long run.Compounding only seems to come into effect when you derive interest earned from the interest earned from the initial investment amount. Compounding has the potential to convert your small SIP sums and transform them into a commendable corpus in the long run.
If you have any long term financial goals that need systematic and disciplinary investing you can consider starting a SIP in mutual funds.