The 5 key features of SIP: Investment through mutual funds is becoming increasingly popular and a major part of this investment is done through Systematic Investment Plans (SIPs). In July alone, SIPs saw record inflows of over Rs 23,000 crore. Experts attribute this growth to several factors such as ease of investment, starting with small amounts, and long-term benefits of compounding. Here are 5 major advantages of SIPs that every investor should know about.
1. Start small
A key advantage of SIPs is that you can start with as little as Rs 100 per month. You don’t need a huge sum to start investing in mutual funds. Many schemes allow you to start with an SIP of as little as Rs 100, making it accessible to everyone.
2. Encourage regular investments
SIPs help you develop the habit of saving and investing regularly. Since you are required to invest a fixed amount on a particular date, you start planning and preparing in advance, making regular investment a part of your routine.
3. Automatic deposits
SIP investments are easy to maintain because your bank account is linked to your investment. A predetermined amount is automatically deducted from your account on a specific date, ensuring a hassle-free investment process.
4. Simple KYC process
Before investing in mutual funds, many investors worry about documentation. Investing in mutual funds requires a simple Know Your Customer (KYC) process, which involves submitting proof of identity and address, along with PAN and Aadhaar details.
5. Evaluation of the fund’s performance
Before starting an SIP, you can use an SIP calculator to assess the potential growth and performance of a fund. For example, you can check how much your investment has grown from 5 years ago, along with the annual growth rate of the fund. This helps provide a clearer picture of your total investment in mutual funds.
What is SIP?
SIPs are a systematic approach to investing in mutual funds. Unlike direct equity investments, SIPs protect investors from direct market risks, although they are still subject to market fluctuations. While SIPs offer the potential for higher returns than traditional investments, past performance does not guarantee future results. Investors should consider their income, financial objectives and risk profile before deciding to invest.
(Based on a conversation with AK Nigam, Director, BPN Fincap)
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