4 reasons why investing in SIP is a good decision

Akanksha JainApr 25, 2017, 16:25 IST

Systematic Investment Plans (SIPs) have become one of the most sought-after methods of investing in mutual funds. An SIP allows an investor to invest a certain sum of money periodically in a mutual fund for a specific period. It operates similar to a recurring deposit.

However, unlike RDs which are debt instruments, SIPs are linked to mutual funds, and therefore, the market performance.

If you are thinking how much should be invested through SIPs, experts suggest to stay invested for a longer period.

“Also, it is essential that you do not miss your investment commitments. You must not attempt to invest more than what you know you can spare after your liabilities and essential expenses are covered,” said Ajit Narasimhan, Category Head – Savings & Investment, BankBazaar.

Narasimhan said investing in mutual funds through an SIP offers investors better risk-adjusted returns.

Here are 4 reasons why SIPs are a good deal

See 4 reasons why investing in SIP is a good decision >>

1. It brings discipline into your investing habits:

An average retail investor may not have the time to monitor their investments regularly or the ability to time investment to the market movements. In such cases, SIP investing helps you in averaging costs and reduces risk related to lumpsum investments.

2. It allows you to decide how much you wish to invest:

You can invest as little as Rs.500 per month through SIP. Smaller investments mean there is no need to set aside a lumpsum, making it is easier on your wallet.

3. It provides price averaging:

When you invest through SIPs, you get more units when the NAV is low and fewer units when the NAV is high. As a result, your cost per unit is lower than the simple average NAV during the period. This is known as rupee cost averaging, which is beneficial to an investor.

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4 reasons why investing in SIP is a good decision

1. It brings discipline into your investing habits:

2. It allows you to decide how much you wish to invest:

3. It provides price averaging:

4. It takes away the need to time markets: