As SIP collection soars to record high in 2023, here is why it is considered smart investment strategy

SIP Investment: You may have never invested in mutual funds through SIP (Systematic Investment Plan), but you must have heard its name. In today's time, if you seek investment advice from someone, they will definitely suggest you SIP. Investment is made in mutual funds through SIP.

The Association of Mutual Funds in India (AMFI) on Wednesday announced that SIP collection in the first 11 months of the Year 2023 rose to a record high of Rs 1.66 lakh crore.

It shows the growing interest of people in mutual fund investment through SIP.

The SIP route is being considered as a wealth creation tool, which can be helpful in accumulating huge funds quickly.

Understand here why SIP is considered a profitable deal.

Although SIP investment is linked to the market and subject to risk, still most experts consider it to be a better investment option in terms of wealth creation.

The good thing is that you can start SIP even with Rs 500.

According to financial experts, if you invest continuously in SIP for a long time, you can easily raise huge funds for the future.

However, this question will definitely be in the minds of many people that how does one get such a big benefit through SIP?

After all, investment through SIP is gaining popularity among people?

If you also want to know the answers to such questions, you must know 4 things related to SIP.

After this, you will also understand why SIP is considered a profitable deal.

SIP: First know how a big fund is prepared

When you invest in a mutual fund, you are allotted some units.

For example, if the NAV i.e. Net Asset Value of a mutual fund is Rs 20 and you invest Rs 1,000 in that mutual fund, you will be allotted 50 units.

Now as the NAV of the mutual fund increases, your invested money will also increase. If the NAV of the mutual fund becomes Rs 35, then the price of your 50 units will increase to Rs 1750.

In this way, when you invest every month through SIP, units keep getting allotted to you.

When the market rises, you are allotted fewer units and when the market falls, you get more units for the same amount of your investment.

In this way, your investment continues to be made at the average price.

Besides, it also gets the benefit of compounding.

That means you keep getting returns on the returns every month.

Because of this, you get fast profits and your capital grows very fast.

SIP: These benefits make SIP special

1- The first advantage of SIP is that there is flexibility in investing through SIP regarding the investment period and amount.

That is, you can choose the option of investment period of monthly, quarterly or half yearly as per your convenience.

Apart from this, whenever you need, you can stop it and withdraw money from your SIP.

2- When you invest from time to time, you get the benefit of rupee cost averaging.

That is, if the market is in decline and you have invested money, you will be allotted more units and if the market is rising, the number of units allotted will be less.

Your expenses remain average even in case of market fluctuations.

That means you do not incur losses even if the market falls.

In such a situation, when the market rises, you get a chance to get better returns on your average investment.

3- The benefit of compounding in SIP is tremendous.

Therefore, SIP should be done for a long time, the longer it is, the greater will be the benefit of compounding.

Under compounding, you do not get returns only on the amount you have invested. Rather, you also get returns on the earlier returns.

4- Through SIP, you learn to save for a fixed period of time, that is, whatever money you have to invest monthly, quarterly or half yearly, you spend the rest only after saving that amount.

This way you get into the habit of disciplined investing.