Benefits of SIP investment

SIP or Systematic Investment Plan is an investment scheme offered by mutual fund companies in India, where an investor is allowed to invest step-by-step in a fund instead of putting one time lump sum amount at risk. This diciplined approch of investment is usually done in the frequency of weekly, monthly or quarterly. Here's few benefits of SIP over lump sum investment.

Disciplined Approach towards investment:

In SIP scheme you decide to invest a small amount on a fixed date of each month without too much thinking about the market condition. This helps you to develop the discipline of investing on a regular basis without taking too much risk at once. Step-by-step investment is much easier to maintain in the long run than investing lump sum at one time.

Rupee Cost Averaging:

The investor investing fixed amount each month via SIP ends up buying more units in the mutual fund when the price is low and less units when the price is high. Over long run this results in lowering the average cost of units purchased in the mutual fund. Thus SIP claims to free the investors from speculating in the volatile market.

Power of Compounding

SIP harnesses the most powerful investment strategy that is the power of compounding.The sooner you start investing the more time your money gets to grow. Leveraging upon compounding even your small investment turn into big wealth over long run.

Flexibility

The SIP scheme offered by mutual fund companies in India provide flexible options to the retail investors. They can increase or decrease the monthly investment amount or may dicontinue his SIP plan any time hassle-free.

Drawbacks of SIP Investment

Despite what mutual fund companies claim, you stil can't ignore the drawbacks of investing in a SIP funds. It's quite not suitable for short term financial goal. SIPs benefits can be realised only after you remain invested in it for long time . A long term perspective covers the entire market cycles.

SIP mode of investment is not suitable for less volatile market (flat market) or market experiencing upward trend. In either case you end of buying more units at higher rates or not so discounted rate.

Investment in SIP is not suitable for people with unpredictable cash flow or people who can not commit a fixed monthly investment.

Past performance of any SIP fund doesn't gaurantee good return in future. SIP plans are still subject to market risk. So, the investors should seek advice from financial planners or advisors before making decision to invest in SIP.

Read Further : Tips for investing in SIP

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