Investing in mutual funds could be a key component of long-term financial well-being and open up a world of potential wealth-building opportunities. However, while it’s important to pick a scheme that suits your overall financial goals, choosing an investing strategy that fits right in with your existing schedule and budget is also essential. Two common approaches you get to invest in mutual fund schemes are – lump sum or systematic investment plan (SIP).
Both investment methods have their own advantages, catering to investors with different goals, risk tolerance, and financial capacity. However, investing through an SIP comes with added benefits from regular contributions, flexible payment schedules, and diversification to rupee cost-averaging opportunities.
Let’s explore these advantages and examine how they can help you with your investment journey.
- Different types of SIP plans to choose from
Depending on your financial goals, you can choose from different types of SIPs including fixed SIP, flexible SIP, step up-SIP, perpetual SIP and trigger SIP.
A flexible SIP allows you to adjust your SIP according to market fluctuations. Step-up SIP plans incrementally increase the investment amount at specified intervals. Perpetual SIP has no end date and is continued until you submit a request to stop it. Trigger SIP gives the ability to invest automatically whenever market conditions appear favourable, based on pre-set parameters.
- Makes market timing irrelevant
Since you invest fixed amounts in SIP plans regularly, you are growing your investments steadily over time, regardless of short-term fluctuations. This approach takes away the pressure to try and predict the perfect time to enter or exit a market; or the fear of missing out on potential gains because you invested too late or too soon.
- Lowers the average cost through rupee cost averaging
When you invest in SIP plans regularly, regardless of market conditions, each instalment buys more units when prices are low and fewer units when prices are high, resulting in an average cost per unit lower than what would have been possible by making lump sum investments. This rupee cost averaging approach helps reduce risks associated with volatile markets and improves returns over the long term by leveraging market fluctuations.
- Plan for different future goals with multiple SIPs
Starting multiple SIPs with different amounts makes it possible to finance many different future goals simultaneously. For example, if you want to save for your child’s higher education for the next 15 years, then you could start a 10-year-long SIP plan to reach this goal. Similarly, if you plan to invest for retirement that is 25 years away, then you can start a 25-year-long SIP plan.
- Online tools available to inculcate the discipline of investing regularly
With SIPs, you can use tools like an online SIP calculator to project the estimated returns and decide how much money you should invest regularly at what frequency. This gives you more control over your mutual fund investment strategy, allowing you to customise it as per your needs and goals.
Also, by enabling the auto-pay feature of an SIP, you can set up a mandate to deduct the SIP instalment amount from your bank account automatically. This helps you maintain consistency in your savings and SIP investments, which helps to reach your financial goals within the planned time horizon.
With their flexibility and convenience, like auto-debits, SIP investments are easy to manage online through various digital platforms and mutual fund investment apps. To ensure you enjoy these benefits, research different SIP plans well beforehand, assess your risk appetite and financial goals, invest regularly and consult with a financial expert who can guide you toward reaching your investment objectives efficiently.