11 Reasons Why SIP Investment is Best Way to Invest?

Updated on 14 Dec, 2023

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It often takes a great deal of time and effort to accumulate a significant corpus to invest in the markets. Never delay your investment plans. Always take the plunge and start with what you have. Being able to invest small amounts is a more efficient way to build a significant corpus for investors. The Systematic Investment Plan (SIP) is a way through which you can invest small amounts regularly in mutual funds. Simply put, it is investing in instalments, similar to an EMI for loans. Let’s see Why SIP Investment is the Best Way to Invest?

Following are 11 reasons why SIP investments are the best way to invest:

1. Investment Discipline

People always lack the focus and determination to invest regularly. We always tend to find excuses and postpone our investments. By selecting the SIP option, you can invest at regular intervals each month. Automated savings inculcate saving habits before you spend your money. It provides financial discipline gradually and also aids in the realisation of benefits later on.

2. Small Investment Amount

Most individuals are of the opinion that investing in the markets requires a lot of investment. You can commence with small investments. SIP allows you to begin investing with as little as INR 500 every month. This investment is significantly less than the most common investment options, such as fixed deposits. This ensures that the majority of individuals who have recently begun earning can invest to achieve their long-term objectives.

You can also take advantage of or participate in the rise of the Indian stock market, even if your income or savings are modest. Investing in SIP plans will help you build a significant corpus over time.

3. Need Not Worry About Timing the Market

One of the benefits of investing in SIP plans is that you don’t have to worry about market timing and investing accordingly. It is nearly impossible to consistently and precisely time the markets. SIPs do not, however, require you to time the markets. You consistently invest a fixed amount, regardless of the market conditions. You will receive more fund units when the market is declining and fewer fund units when the market is rising. Therefore, averaging is effective, and your portfolio will be well-balanced by the end of the day.

4. Lower Average Cost of Purchasing Units

As SIPs make sure you invest across market cycles, it cuts the average cost of purchasing mutual fund units. The fund’s NAV will be lower when markets are declining and higher when markets are outperforming. Thus, when investing for the long term, the average cost of purchasing units tends to be cheaper than when you invest a large sum while the markets are high.

5. Benefit from Power of Compounding

When you invest through the SIP using the growth option, the monthly earnings generated by the SIP will be re-invested until the maturity of your investment. Consequently, your investment amount is exposed to compounding over time, which facilitates in generating exponential returns.

Recommended to Use: Scripbox’s SIP Calculator

6. Stop or Pause Your Investments (SIP) Anytime

The majority of SIPs do not impose any fees or penalties if you terminate the plan at any time. All you have to do is simply give an instruction to pause or stop your investments. This is a benefit that conventional investments such as Fixed Deposits and Recurring Deposits do not offer.

Recommended Read: How to Stop SIP?

7. Skip a SIP if You Are Tight on the Budget

Sometimes, for various reasons, you may not have sufficient funds in your bank account for SIP investment. SIPs permit you to skip a month without incurring any fees or penalties.

8. Step-Up Your Investments or Start New SIP

If you received a promotion or began earning additional disposable income each month, you can establish a second SIP plan in mutual funds or step up your existing SIPs. For instance, if you initiate an INR 5,000 SIP in a mutual fund plan of your choosing, you are not required to continue investing INR 5,000. If your savings grow in the future, you can alter the SIP amount or even start more SIPs either in the same mutual fund scheme or new schemes. Thus, you can begin investing your surplus funds and earn a significant return.

Explore Types of SIPs

9. Don’t Make Impulsive Decisions

Do not mix financial and emotional decisions. Another crucial part of investing in the stock market is never to allow your emotions to influence your investment selections.

The stock market fluctuates continuously. Thus, do not make any rash decisions based on the market’s point performance. SIPs full potential is seen when the markets are volatile. You will be able to accumulate more number of fund units when the markets are low and benefit from price appreciation when they recover. Therefore, by following a disciplined approach to investing and avoiding reacting to the short-term volatility of the markets, you can benefit in the long term.

10. Transparency

SEBI and AMFI have laid down certain stringent policies and measures that every AMC must adhere to protect investors. This has rendered the mutual fund business transparent and secure for investors.

11. Easy Portfolio Tracking

The majority of India’s leading AMCs and FinTech firms allow investors to manage their mutual fund investments online. You can monitor your SIPs, start new SIPs, stop SIPs, do STPs or SWPs to a different scheme, and even redeem your mutual fund units from the comfort of your home.