The popularity of SIPs or Systematic Investment Plans has observed a significant rise in last few years. However, many mutual fund investors confused about the term SIP mutual funds till date. This article will explain you what is SIP, how SIP works and how you can use it for creating wealth over a period of time to achieve your long-term financial goals.
A Systematic Investment Plan or SIP mutual funds allows you to invest a definite amount regularly in a particular mutual fund scheme which is typically an equity mutual fund scheme. Having an SIP imparts financial discipline in your life. It helps you to invest regularly without worrying about the index level, market mood, etc.
SIPs help in averaging purchase cost and maximising returns. When you continue investing regularly for a certain period of time, you would get more units when the market is low and less units when the market is high irrespective of the market conditions. This eventually averages out the purchase cost of your mutual fund units.
SIP mutual funds are widely known for the power of compounding because when you keep investing for a longer period, you earn returns on the returns already earned by your investments. This way your money would starts compounding and leave you with a large corpus that can help you achieve your long-term financial goals with regular small investments.
Though SIP is invested through fixed amount every month, investors also have a provision of customising the way they invest money via SIPs. Many fund houses allow people to invest monthly, bi-monthly and fortnightly, according to their convenience.
With SIPs, you do not need to take time from your schedule to make investments. All you need to do is to complete the application form and just submit post-dated cheques or avail the Magnum Easy Pay facility and relax as you can further monitor your progress of investment through periodic statement of accounts.
In order to create a good corpus using mutual fund investments, all you need to do is plan your SIP mutual fund Investments. Frequent Intervals i.e. monthly, quarterly, etc. will increase chances of buying units when prices are low.
If you are able to chart out a long-term investment plans then SIP is your best option for long-term investment periods. It helps a long-term investor receive good returns over a period of time. Long-term investors usually earn profits from the appreciation markets which is reflected in the long-term.
Financial experts advise that an investor should always diversify their investments. Since, Mutual Fund investments are diversified it reduces your financial risks and helps in optimizing returns.