SIPs or systematic investment plans have gained immense popularity in recent years. The ease and convenience of SIP investments has opened the stock market’s doors to millions of investors who can now make small monthly investments to earn market-linked returns. However, as a beginner, you might still be wondering if SIPs are indeed the ideal investment option. This article outlines why SIPs are ideal investment modes when it comes to mutual funds to help convince you of its benefits.

Here’s a list of reasons why SIPs are an ideal mode of investment in the stock market:

Minimising risk

SIPs help mitigate the investment risk associated with equity investments. Investing in equities directly requires ample market expertise and time to ensure accurate individual stock selection. Selecting the wrong equities for your portfolio can result in losses. SIPs help minimise this investment risk since mutual fund schemes are managed by professional and experienced fund managers. They conduct thorough research to ascertain the right assets and reshuffle the fund portfolio according to market conditions to maximise returns and minimise risks.

Benefits of compounding

The compounding benefits offered by mutual fund SIPs make them an ideal investment option. When you invest in mutual funds through SIP, each monthly investment earns returns. These returns are reinvested to buy more fund units. Effectively adding to your original investment with fresh contributions and reinvested returns helps compound your earnings. Over time, your entire corpus is subjected to a compounding effect that ensures exponential growth. Simply put, due to the compounding benefits of SIPs, you can build a sizable corpus over 10 years with a nominal investment of Rs. 1000 monthly.

Rupee-cost averaging

Despite several attempts at debunking this myth, many investors still believe that timing the market is crucial to invest in equities. SIPs offer an effective solution to the problem of timing the market. By making fixed and consistent contributions through SIPs, you invest regardless of the market conditions. When the market is low, you purchase more units of the fund, when the market is high, you buy fewer units. This investment strategy is called rupee-cost averaging since it lowers the average cost per unit over time, making SIPs an ideal investment choice. ‘

Flexibility

Mutual fund SIPs allow you to flexibly invest in the stock market. Depending on your cash flow and income, you can decide on the amount you wish to invest and the frequency of your investment. Moreover, while it’s best to continue your SIP for a long-term duration to exploit the power of compounding, it is not mandatory to do so. You can discontinue SIPs made in open-ended funds and redeem your units at any point in time to meet an urgent cash crunch. This built-in flexibility makes SIPs an ideal investment option.

Disciplined investing

Investment discipline is the key to a successful financial portfolio and SIPs help you achieve it. Through SIPs, you make regular and consistent contributions to your mutual fund investments. A fixed amount is auto-debited from your linked savings account every month. This helps inculcate a disciplined approach to saving and investing. Instead of worrying about market conditions and short-term fluctuations, you focus on diligently investing your money to build wealth overtime. In short, SIPs are ideal investments because they help enforce a sense of financial discipline among investors.

Affordability

SIPs are ideal investment options for those seeking an affordable gateway into the stock market. Most investors find it difficult to secure a lump-sum amount to invest in the stock market. SIPs offer a much more affordable alternative. Mutual fund schemes in India offer SIPs starting from as little as Rs. 100 per month. This low minimum contribution threshold makes SIPs accessible to small investors who cannot invest a lump-sum.

• SIPs help minimise risks and eliminate the need to time the market.
• Investing in MFs through SIPs helps leverage the benefits of compounding returns and rupee-cost averaging.
• SIPs offer investment flexibility and ensure affordability for small investors.

SIPs are ideal investment modes for those who wish to espouse a convenient and efficient investment strategy. Systematic investment plans are designed to help you invest consistently in different mutual fund schemes to capitalise on the benefits of compounding and rupee-cost averaging. Since most novice investors know very little of the stock market, going the SIP route can be helpful. Instead of investing a large lump-sum amount in equities with little to no research, they can invest in MFs through SIPs and benefit from the professional fund management perks.

If you haven’t started SIPs yet, you can do so today on the Bajaj Finserv Mutual Fund Platform. This smart platform allows you to start mutual fund SIP investments with as little as Rs. 100. You have a range of resources at your disposal including our Mutual Fund Calculator and the opportunity to compare 1000+ mutual funds.