SIP investment for the past few years has emerged as a prudent method for the retail investors to invest in mutual funds. Such growth and popularity are owing to its potential to accumulate an adequate corpus through predetermined investments in mutual funds over a long term regardless of market volatility.
If you have not started investing in mutual fund (MF) through SIP and contemplating to do so, listed here are top 5 reasons to begin SIP in mutual funds in 2022:
- Removes the need to time the market
You must have a sound understanding about fundamental analysis, macro-economic situations, technical analysis, policy impacts, geopolitical trends etc., to time your market investments. If you are an amateur investor, tracking the market may be easy for you. In such a case, routing your mutual fund investments through SIP will ensure automatic and regular investments, which will save you from the dilemma of timing your MF investments based on market volatilities. Also, opting for SIP will average out your investment cost by buying a higher number of units during market correction.
- Cater regular and disciplined investment
In SIP, you are required to commit a specific amount as investment at a predefined date from your savings bank account to your selected MF scheme. Such automatic deduction enables regular investment and saves you from the hassle of getting swayed by the emotions of fear and greed. Periodical investment even assists in instilling financial discipline as you are forced to limit your avoidable expenditures to mitigate your SIP commitments on time.
- Activates rupee cost averaging
As investment amount via SIP stays the same every installment, the number of units purchased differs depending upon the market levels. Higher numbers of units are bought when market prices are lower and lower numbers of units are bought when the market prices are high. It assists in automatically averaging the investment cost. For a long-term investment horizon, investing via SIP allows you to exploit market corrections in your favor by purchasing a higher number of units at lower net asset value (NAV).
- Allows investment of smaller amount
Fresh lumpsum investment in equity mutual funds usually need a minimum investment of Rs 5,000 and additional investment at Rs 1,000. However, in the situation of investing in a mutual fund through SIP, the minimum investment can be as low as Rs 500. Thus, SIP investment allows you to begin your mutual fund investment with a small amount with zero need to wait for accumulating a higher investible sum.
- Provides the benefit of compounding
Compounding is the concept where interest incurred from your investment is invested back along with your capital funding, which begins to yield returns on its own. This allows them to generate higher earnings over a time-period. As you can start your SIP investment with a small investment amount, this allows you to begin investing in a mutual fund very early in life to get the benefit of compounding. For instance, a small monthly investment in SIP of Rs 1,500 every month in equity mutual funds at a return rate of 12 percent p.a. for 30 years can generate a corpus of Rs 52.42 lakh.
Everyone has dreams – a bigger home, a new car, a trip abroad and so on. Such dreams can be achieved if you convert them into financial goals and work actively towards them. By investing in equity mutual funds through SIP, you can make a way to turn these goals into reality.