A Systematic Investment Plan (SIP) is a method of investing – offered by many mutual fund houses – which allows you to contribute a fixed amount of money over regular intervals of time; the contribution will be automatically deducted from your savings account. In this sense, an SIP is a powerful tool that you can harness as an investor, to generate wealth over longer periods of time, by consistently investing a relatively small sum. Adding an SIP to your portfolio has many benefits, here are just a few – 

Start small but plan big:

You can start investing in an SIP with a sum as small as INR 500, and increase your investment over time. In that, it is the perfect option for someone who is looking to make contributions towards their long-term goals, and not strain their budget at the same time. Taking up an SIP as early as when you get your first job can give you a large pay-off that contributes substantially towards buying a home or even your retirement. This is because beginning to invest sooner rather than later allows you to utilise the power of compounding to its fullest. Subsequently, in the long run, fluctuations in the market will also average out, allowing for more consistent returns. This is known as rupee cost averaging. 

Rupee Cost Averaging is an investment technique applied to regular fixed instalments in a mutual fund scheme. As the amount is fixed and regular, more units are bought when the market price of shares is low and lesser units are bought when the price is high. With the help of this mechanism, any risk that your investments carry gets distributed across market movements, effectively reducing the impact of a big drop in the numbers. 

Add discipline to your investing approach

An SIP requires you to make a commitment towards saving for a stipulated period of time, usually in the long-term range. By making periodic investments, you develop a certain discipline as an investor and increase the possibility of achieving your goals. This process has become even more streamlined in today’s world –  since the sum is auto-deducted from your savings account at stipulated intervals, you only need to ensure that there are sufficient funds. Here it is good to remember that, while there is no limit on the number of SIPs you can contribute towards, it is advised that you link your SIP to a particular goal and make contributions till you achieve the same. You can start a new plan for another goal, if required.

Invest as per your convenience

Most SIPs usually stipulate a minimum period of at least six months, but beyond this it can go on till a time of your choosing. The interval at which you make payments is also defined by you; most commonly, contributions are made weekly, monthly or quarterly. You are also permitted to increase or decrease the amount you contribute towards SIP, by cancelling your present mandate and asking for a revision, without any penalties. Fund houses do not charge a penalty for stopping services (and restarting if desired), as long as all the stipulated payments have been made thus far.

The Right SIP acts like an emergency fund

Accidents and emergencies are unpredictable, but usually require a quick response which commonly includes financial assistance as well. In this regard, apart from helping you achieve the goals you set, contributing towards a suitable SIP (like liquid mutual funds) can be seen as maintaining an emergency fund. In the event of any contingency, from an accident to a medical emergency, you can withdraw the funds in such investments at the click of a button, to make any payments when required. This can help you protect your savings and other finances, and ease the burden on your mind during the stress of an emergency.

Apart from these benefits, investing in an SIP can also diversify your portfolio. Systematic Investment Planning is a simple but effective method to adopt for investors – especially those who are in the early stages of their career – who want to take their long-term planning into their own hands. Consulting a certified financial planner or wealth management firm with expertise in this field can help you make a more informed decision when it comes to picking the right plan for you. So what are you waiting for? Identify an SIP that fits your profile, and start working towards your goals!