The Association of Mutual Funds in India (AMFI) published a report on its website site on October 2023 underlining the popularity of SIPs, with more than seventy-three million SIP accounts opened across India as of October 2023. AMFI further reported that the total amount collected through SIP investments stood at ₹ 16,928 crore by the end of the same month. Read on understand SIPs in detail and understand how they help in wealth-building strategies.
How does an SIP work?
An SIP allows you to invest a fixed amount periodically in a mutual fund scheme. The periodic interval can be weekly, monthly or quarterly depending on your preference. SIPs invest your money regardless of market conditions by purchasing units when prices are low and when high. Over time, units accumulate through rupee cost averaging to build a sizeable corpus. An SIP inculcates discipline and avoids the need to time the markets while investing small amounts regularly.
SIPs can help investors formulate an efficient wealth-building strategy
Investors prefer SIP investment because they enable them to invest conveniently and help them plan their investments. Investors can unlock various advantages by investing in top mutual funds through SIPs. The following are certain key features of SIP investments that investors should know about.
- Investors can diversify their portfolio using SIPs
An investor has a wide spectrum of investment opportunities to choose from when they opt for for an SIP. They can invest in stocks, government bonds, money-market instruments, or Exchange-Traded Funds through SIPs. Moreover, an SIP investment amount can be as small as ₹100 monthly.
- Investors can choose a top-up facility and can automate their payments
If an investor needs to be reminded of their SIP investments, they can simply choose to automate their investments through the autopay facility. They can also choose the top-up facility if they wish to contribute more than usual towards their investment.
- SIPs offer the advantage of rupee-cost averaging
Rupee-cost averaging is the investment technique of purchasing more units of a mutual fund scheme when the prices are low and fewer units when the prices are high. It is a strategy that shields a mutual fund investment from market volatility. An SIP carries this advantage by default.
- Inexperienced investors can benefit from professional fund management.
Professional mutual fund managers manage SIP investments, helping investors with right investment decisions.
- SIPs offer increased flexibility to investors.
SIPs, by nature, are very flexible modes of investment. They can be stopped and resumed by the investor as and when they wish, and it takes very little effort on the part of the investor to start one.
Before starting to invest in a mutual fund through an SIP, investors must use an SIP calculator to estimate their overall returns at the end of the mutual fund’s tenure. SIP calculators can also help investors know their preferred tenure and investment amount. Furthermore, investors should analyse the performance of the fund in the past few months before making any mutual fund investment.
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