Mutual Fund SIP: Is investing in mutual funds through SIP a good option?

Mutual funds have been gradually gaining popularity among investors compared to traditional savings instruments. Investors appear enthusiastic about this alternative to typical bank fixed deposits. A Systematic Investment Plan (SIP) offers the investors a good option to save a small amount periodically in Mutual Funds. The SIP investments help to build large corpus funds through regular investments in mutual funds.

SIP is a reliable approach to enter the world of long-term investments if you want to build a corpus fund over the years. It is critical to invest for the long term, which implies that you should begin investing early in order to maximise your overall returns.

You can start investments in mutual funds through SIP with as little as Rs 500 per month.

What is SIP?

Systematic Investment Plan (SIP) is a mutual fund investing approach in which a fixed sum is invested in a mutual fund scheme at regular intervals, such as once a month or once a quarter, rather than making a lump-sum investment.

The monthly sum, which is equivalent to a recurring deposit, might be as little as Rs 500 every month. It’s convenient because you may direct your bank to debit the amount automatically every month.

Advantages of investing in mutual funds through SIP

- You have the option of determining the monthly investment amount. The minimum SIP amount will be indicated in the mutual fund offer document. You can choose the SIP amount based on your risk tolerance and financial goals.

- You can cancel the SIP at any time. Even if you invest in a mutual fund that has a lock-in period, you are not required to continue investing in that fund until the lock-in period expires. The advantage of a SIP investment is that you can terminate it at any moment. A number of factors may cause an investor to discontinue a SIP.

- You can increase the SIP amount anytime. The benefit of a SIP investment is that investors can adjust their monthly SIP amount. If the fund in which you are investing is outperforming your expectations and you want to increase your monthly investment, you may easily do so by changing the monthly SIP amount. Likewise, if you want to invest in a new fund and want to divert some money to it, you can reduce your monthly SIP contribution.

- When you begin a mutual fund SIP, a predetermined amount is withdrawn from your savings account each month and electronically transferred to the mutual fund. SIPs automatically save a portion of your monthly income while also allowing you to invest in mutual funds from the convenience of your own home or office.