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SIP Is An Investing Habit That Can Help You Gain

 Mutual fund investments are fast becoming the go-to investment option for many investors due to the multiple benefits they offer. These benefits include high returns to generate wealth in the long run and tax savings. Besides, mutual funds are professionally managed and provide ease of investment.

Typically, there are two modes of investing in mutual funds, lumpsum or via Systematic Investment Plans (SIPs). Most mutual fund experts recommend investing via SIPs.

This article can help you understand how SIP investments can boost the returns of your investment portfolio.

Understanding SIPs

SIPs give you the freedom to invest small amounts in a mutual fund scheme at regular intervals. These intervals can be weekly, monthly, quarterly, half-yearly or yearly depending on your financial budget. Thus, you can enter the market at different levels of the market cycle. This can help average the purchase cost of the units you buy in the long run, also known as rupee cost averaging.

Let us understand how this works with the help of an example.

Say, you start a regular SIP of Rs.10,000 per month. When the Net Asset Value (NAV) is 20, you can buy 500 units. Assume, the market dips and the NAV drops to Rs.16. You automatically end up purchasing 625 units with the same SIP amount, i.e., 10,000/16 = 625.

Thus, with SIP investments, you end up buying more units when the markets are low and vice-versa.

When you plan to sell your investments, all the units will be priced the same. However, the units that you bought at a low price can bring you profits. Overall, this could translate to good yields on your investment portfolio in the long run. This is how SIPs can help enforce the goal of ‘buy low, sell high’.

How SIPs make investing a habit

When markets become volatile, those investors who typically choose the lumpsum route tend to panic and refrain from investing or slow down their investments. By selecting the SIP route, investing becomes a habit.

You end up investing regardless of the existing market condition. Opting for a SIP can ensure your investment takes place automatically every month. You do not have to worry about monitoring the market since only a portion of your total investment is exposed to the market risk. So, even if markets dip, your investment could draw good yields with consistent SIPs once the market picks up.

If you wish, you can start by investing in tax-saving mutual fund instruments such as ELSS funds via SIPs. It can help you generate a good corpus and also save tax.

Conclusion

If you are a new investor looking to invest in mutual funds, you can start by reading what is a mutual fund and how to invest in SIP. Once you become familiar with SIPs in mutual funds, you can start investing in the schemes that align with your investment goals. It is good to choose mutual fund schemes after considering your risk appetite and investment horizon to reap the maximum benefits from your investment portfolio.


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