SIP Investment: 5 key benefits every investor should know before investing

SIP's 5 Key Features: Investing through mutual funds is becoming increasingly popular, and a large portion of this investment is done via 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 the long-term benefits of compounding. Here are 5 major advantages of SIP that every investor should know.

1. Start Small  

A key advantage of SIPs is that you can begin with as little as Rs 100 per month. You don't need a large sum to start investing in mutual funds. Many schemes allow you to start with a SIP of just Rs 100, making it accessible to everyone.

2. Encourage Regular Investments  

SIPs help you develop a habit of regular saving and investing. Since you must invest a fixed amount on a set date, you begin planning and preparing for it in advance, making regular investing a part of your routine.

3. Automatic Deposits  

SIP investments are easy to maintain because your bank account is linked to your investment. A pre-determined amount is automatically deducted from your account on a specified date, ensuring a hassle-free investment process.

4. Simple KYC Process

Before investing in mutual funds, many investors worry about the documentation. To invest in mutual funds, a simple Know Your Customer (KYC) process is required, which involves submitting identity and address proof, along with PAN and Aadhaar details.

5. Fund Performance Assessment  

Before starting an SIP, you can use a SIP calculator to assess the potential growth and performance of a fund. For instance, you can check how much your investment from 5 years ago has grown, along with the fund’s annual growth rate. This helps provide a clearer picture of your overall mutual fund investment.

What is SIP?

SIP is a systematic approach to investing in mutual funds. Unlike direct equity investments, SIPs protect investors from direct market risks, though 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 goals, and risk profile before deciding to invest.

(Based on a conversation with AK Nigam, Director, BPN Fincap)