If you are serious about acquiring long-term income, you need to remember that you need to invest in the market. However, a major misconception that people have about market investments is that they are expensive and that they require a one-time investment. But that’s not the case, while lump-sum investments are okay if you have access to the required fund, in case you don’t, you can opt to make monthly payments. The investment mode through which you can make monthly payments is referred to as a systematic investment plan or SIP.
What are SIPs?
From the perspective of nature and function, an SIP is known for being different from the investment mode referred to as lump-sum. SIPs are an investment mode in which a fixed amount is deducted from your bank account on regular basis (monthly deductions being a common example). This mode of payment for mutual fund schemes ensures that you don’t fall under the pressure of arranging the funds for a lump-sum investment.
Moreover, these plans don’t end up burning a hole in the investor’s pocket. Under SIPs, to pay for the mutual fund schemes, you can opt to leave a standing instruction with the bank that automatically deducts from your savings bank account at regular intervals specified by you. For example, if you ever forgot the payment date, the feature of standing instructionsensures that a mutual funds investment goes through smoothly.
Why should you opt for SIPs?
It is important to note that there areseveral reasons why you need to consider choosing the SIP route over the lump-sum one.One of them is SIPs come with the potential of paying off higher returns in the long term. These plans are also known for generally offering the guarantee of substantial growth in investments. Also, SIPs as a mode of investment for mutual funds are regarded as a balanced investment choice. Through a SIP, more than one unit is purchased whenever the price is low. Conversely, fewer units are bought whenever the price continues to grow. Therefore, with time, the cost of investment is lower than the actual cost. These plans are considered a smart choice for investors who want a deduction on their income tax returns.
Are there any benefits of investing through SIPs?
Here are some of the benefits that SIPs are known for offering:
- If you are a conservative investor, SIPs can be helpful:
Conservative investors are the type of investors who want their money to grow. However, But, they don’t want to risk their principal investment. Systematic investment plans are suited for such investors. In a SIP, all that’s required of you is to pay small amounts regularly. As only a small amount is required if you opted for SIPs, there is no need to worry about the budget. If you don’t have a regular source of income, you could still go ahead with SIPs. To determine your monthly investments,you need to use the SIP calculator.
- These plans are convenient to use:
Another salient feature of SIPs is that they are very easy to understand and use. Usually, they don’t come with many terms and conditions. Moreover, nowadays, it is easy to register for SIP online, making it a fast and hassle-free process. An application for registration of SIP is validated by officials in approximately three weeks. After that, you can start using your mutual fund portfolio. Also, new mutual fund investors may consider the transparency offered by this investment mode and thus choose it. All that’s required is for you to choose one among the different mutual fund variants. After that, leave a standing instruction with the bank.
- SIPs don’t drain the wallet:
In contrast to lump-sum investments, where the payment for mutual fund investments is made at once, with these plans, you can payregularly. You can start at a low sum and as time passes and if your financial situation improves, you can increase payments. This makes SIPs very light on the wallet.
Are SIPs suitable for people of all?
There is a misconception that investments are for professionals who are over 30. However, that could not be farther than the truth. Just like investment schemes such as mutual funds and their variants are suitable for people of all ages, the same applies to the mode of investments as well. If a young professional wants to start early but is not earning enough, they can opt for a SIP with a small sum and gradually increase the amount whenever there’s a salary hike.