A mutual fund (MF) is a mechanism where investors pool in their money together. It is an indirect way of investing in the stock market.

SIP means Systematic Investment Plan and it’s a facility provided by MFs.

SIP is a convenient, disciplined, regular and prudent route to wealth creation over a long term.

You should start your SIP investment early in life and maintain a long-term focus to achieve your financial goals.

Investments in SIP can be done with as less as Rs.500 or whatever amount you can contribute as per your convenience and cash flow at discretion.

SIPs can be done monthly or quarterly but it is recommended doing a monthly SIP.

SIP offers a lot of convenience like
  • Inculcating a financial discipline –

    Just like you have other commitments of let’s say repaying home loan, personal loan, car loans - which are your expenses for which you ensure you have adequate funds in your account – similarly by doing an SIP, you inculcate financial discipline because you know that every month you will contribute the decided amount towards your SIP. Hence you start planning other expenses keeping this mind. Others are expenditure but SIP is an investment.

  • Rupee cost averaging –

    Which means that sometimes markets will be high and sometimes markets can tank. Thus you buy lesser units when markets are high and more units when markets are on a downward trend. Thus this feature of buying at various levels of the market averages out the cost of your investment is called as rupee cost averaging.

  • Power of Compounding –

    This is getting interest on interest and it comes into play when you stay invested for a long period of time. The longer you stay invested, the better it is. Staying patiently invested for 10 years is advised if compared with 5 years and staying invested for 15 years is advisable if compared with 10 years. So what happens in this time frame is that you keep on generating interest on interest. You don’t realize how powerful it finally is because it is like “snowball effect” – what starts as a simple block of ice becomes a huge snowball of ice. Just like small drops of water finally form an ocean. You realize the magnitude at the end -- A small investment finally turns out to be huge.

  • Auto debit feature –

    You simply have to decide on which day of the month should the SIP installment be debited form your bank account – just enter the correct bank account details and the bank will automatically keep on debiting your account for the sum chosen and the duration of the SIP.

  • Diversification –

    A mutual fund offers diversity since there are equity, debt, balanced, ETF schemes – an investor can choose schemes based on his / her personal choice and risk taking ability.

  • Starting with Small amounts –

    As mentioned, SIPs can start with as less as Rs.500. Shelling out just Rs.500 is surely possible with any investor irrespective of any expenses you incur.

  • Fund Manager Expertise –

    A fund manager who is an expert, whose probably the only job is to track the markets day in and day out manages your money. He is supported by a team of analysts who track various sectors and manage investors’ money with an objective to maximize investors’ money.

  • Governed by regulations –

    MFs are governed by SEBI which has laid down strict rules and regulations about investing norms. Hence no fund manager or fund house can go against it and have to work within the framework provided.

  • Spending time in the market –

    The biggest mistake investors do is time the market – taking bets that when markets fall they invest and markets rise, they sell. But timing the markets is not in any one’s control. SIPs remove this bad habit and temptation. SIP makes you invest every month irrespective of market conditions hence inculcating financial discipline.

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