Investing money in the financial sector is one of the most popular ways to earn quickly. With its growing popularity, there arose the need to diversify the modes of investment.
To fulfill this need, various ventures and their subcategories were formed including different ways of investing money into the market. To this day, new policies and schemes are made almost every day to woo the potential customers. One of these methods is SIP.
What Is SIP?
The most prominent question a new investor would have in his mind is “What is SIP?” SIP stands for Systematic Investment Plan – in which the buyer invests a fixed amount of money every month, be it in the market or on passive income streams. It is an automatic market timing mechanism. To explain this in simpler terms, it forces the buyer to invest in more units when the price is low and in fewer units when the prices soars; thereby, managing the expense of the mutual funds, during highs and lows of the market.
This is a smart way of investment, where the time period of market expenses are taken into account and the investments are done accordingly. What is SIP, is like an advisor who tells when to invest and how much to invest. With this, the investor can also estimate various goals of their lives, like how much money they would need after retirement. Also with each month’s valuations with them, it is easier to calculate the investments that need to be done in the next month.
Any investment anybody makes has an objective, like buying a house, education, marriage or for children. Many of them demand a big amount of money as one time investments, while being prone to the risks and downfalls of the investment systems. Systematic investing in Mutual Fund is the answer to the prevention of the pitfalls of equity investment while at the same time enjoying the promised high returns.
Now that we have learned what is SIP, let’s delve into its benefits.
- Managed By Professionals
One’s funds being managed by market experts and professions gives them the freedom of not to compulsorily research and study the market trends before investing. For all this work, the companies employ expert teams who track the market, record it and carry out research into the company and its policy along with the market and economy the time of investment. Hence, for those who don’t have time and/or resources to deeply study the market before investing, this can be a blessing.
It is said that one should not keep all their eggs in one basket. This is where mutual funds come in handy. They have an innate mechanism of diversifying the buyer’s portfolio by investing in different sectors of the market at no extra cost. While buying various policies based on different sectors in order to diversify one’s investment would surmount to enormous costs, this problem is also nullified by SIPs.
What is SIP’s another advantage, is that the Security and Exchange Board of India (SEBI) and Association of Mutual Funds in India (AMFI) both regulate the systemic investment in mutual funds in India. Thus, they can be deemed safe and transparent with smooth functioning. This considerably increases the safety and convenience of SIPs.
- Peace Of Mind
SIP also relieves the investor of the cumbersome task of studying market trends and deciding when to invest. SIPs make the market timing irrelevant as it is a tool for investing irrespective of the market conditions. Not only this, what is SIP’s yet another merit, is that it considerably reduces the average cost.
In SIPs, investors buy a fixed amount regularly. Therefore they end up buying more and more units when the markets are down and their net asset value is low, while buying lesser when the opposite is true. In general, people tend to sway away from the lows of the market; however when one has invested in SIPs, they are ‘forced’ to buy even then. And as experts believe, when the market is low, it is the best time to invest. Thereby, SIPs result in huge profits for the customers.
SIPs demand frequent, but very small amounts of investment. They are hugely profitable against the larger one time ones at the same time cutting the burden of cost on the buyer to a great extent. It does not strain the already established commitments of the investor. This is particularly ideal for a small investor would otherwise not be able to buy into the markets.