SIP refers to the daily way of investing in mutual funds which is somewhat similar to recurring deposit. The only difference is that SIPs are market-linked and recurring deposits are not. This means that the returns that we receive in the case of SIPs vary because it depends on the market but in the case of recurring deposits, the returns are fixed.
When someone considers SIP investment, one can choose the date and also the rate at which the amount will be deducted, by themselves, and on that particular date the amount will be auto-debited from the bank account.
SIP investment can be quite beneficial for achieving one’s financial goals but to achieve that, the person must be clear about his or her financial goals. Financial goals can be long-term or short terms. Long-term financial goals include the marriage of one’s child or the money required after retirement and in such cases, investing in equity funds or hybrid funds is always a better option. Though these plans are prone to market risks with the SIP plans, those risks can be managed.
The following SIP benefits that have been mentioned below, will help a person in the process of financial planning:
1. SIP investments are not like mutual fund investments. Mutual fund investments are subject to market risk but SIPs are not so. They lower the risks during the process of wealth formation.
2. SIP provides to its investors another fruitful feature and that is the feature of averaging the cost of the rupee. This means that in SIP, the investors buy fewer units when the market is high and buy more units when the market is low. Thereby reducing the rapid and unpredictable change in the market and also increasing the returns more rapidly.
3. In the case of SIP investments, there is a compounding power which means that our income in the long run will increase rapidly.
4. With SIP investments, we can invest small amounts regularly but still achieve our goals without letting our financial goals get affected. Thus we can say that in the case of SIP, every little drop counts.
Conclusion:
We can say that these benefits of SIP will help plan our financial goals and therefore without putting much thought into it, we must consider SIP investments to achieve our financial goals. Another thing to keep in mind is that, for any of our financial goals to be fulfilled, we must select SIP tenure for at least 5 years.
Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.
