Invest through sip investment plan in mutual funds

Posted by jigneshshah on May 10th, 2018

Mutual funds are a smart investment option. You can invest in mutual funds through Systematic Investment Plan (SIP). SIP allows you to invest a fixed amount of money regularly in mutual funds. You can invest monthly or quarterly as per your convenience. It is a discipline way of investing.

You can invest small amount of money regularly through SIP in mutual funds. You can invest the money for the required time period to reach your financial goals. SIP is a useful tool as it allows you to invest small amount of money monthly without affecting the household budget.

SIP allows you to invest a fixed amount regularly and this gradually turns you into a disciplined investor. There are many advantages of investing through SIP investment plan. They are as follows:

  • SIP supports the power of compounding. In compounding the initial invested amount earns interest and so does the previously earned interest. The longer you stay invetsed more the benefits of compounding.
  • SIP allows you to invest a fixed sum regularly and thus you can avoid timing the market. As you invest regularly the long term investments tend to iron out market volatilities.
  • Investing a fixed sum regularly allows you to buy more units when the prices of the units is low and less when the prices of the units are high. This brings down the average cost of acquisition of units. It is called Rupee Cost Averaging.

Points to consider before investing in SIP investment plan
Before you invest in mutual funds through you should consider the following points. You should first identify your goal. You should then invest to reach your goal. Investing with goal in mind keeps your committed to your investments. You should decide your risk taking ability. You should not invest without knowing your risk tolerance.

You have to decide your investment time frame. You should do research and find mutual fund products that suit your requirements. The objective of the funds you invest in should match your investment objectives. You should invest in 3 - 5 funds and diversify your investments.

You should diversify your investments across equity, debt and gold. The risk in one asset can make up for the loss in another. You have to decide how much to invest across each asset class.

Why invest through SIP?
There are many reasons to invest through SIP

  • It is an automated process and therefore convenient.
  • It allows you to invest in a disciplined way monthly.
  • It allows you to buy more units when the market is low and less when the market is high. This brings down
  • the average cost of acquisition of units.
  • It supports the power of compounding. The longer you stay invested more the benefits of compounding.

The author is blogger and likes to blog on the many topics on mutual funds. Currently the author has briefly explained about SIP investment plan.

Also See: Mutual Funds, Sip Investment, Investment Plan, Sum Regularly, Sip, Invest, Funds
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