SIP or Systematic Investment Plan is an investment strategy that allows you to invest a fixed amount of money at regular intervals in mutual funds. Mutual funds are a popular form of investment in which money is pooled from multiple investors and invested in different stocks, bonds, and other securities, managed by professional fund managers. SIP investments are considered a safer form of investment as they reduce the risk through diversification and averaging.
Mutual Fund investments made through SIP provide investors with a disciplined approach to save and build wealth as they provide the benefit of rupee cost averaging, where you buy more units when the market is down and fewer units when the market is up leading to a better average price. SIP investments are a convenient way to invest in mutual funds, as they provide the option for automatic debits from your bank account at regular intervals, thus reducing the investor’s need for manual intervention.
The Indian mutual fund industry is growing at a rapid pace and is expected to continue with expected growth rate at 15% to 20%. The assets under management (AUM) of the Indian mutual fund industry have increased from INR 11.93 lakh crores in November 2016 to INR 35.02 lakh crores in November 2021, showing a three-fold increase. This increase in AUM is an indication of the investor’s preference for mutual funds.
SIP investments are a simple and effective way to grow your wealth and meet your financial goals. To understand the benefits better, let’s consider a hypothetical example.
Suppose Mr. X invests INR 5,000 every month in SIP for a period of ten years in a mutual fund scheme that gives a return of 15.5% per annum. At the end of ten years, he would have invested INR 6,00,000 in total. However, his investment value would have grown to INR 15,88,541. Thus, over ten years, his investment value would have almost tripled.
Another benefit of SIP is that it builds a habit of saving, thus inculcating financial discipline in investors. By investing even a small amount regularly, over time, it can potentially accumulate into a substantial sum.
However, it is important to note that before investing in mutual funds, investors should gauge all the pros and cons of trading in the Indian financial market, and understand the risks associated with mutual fund investments. Mutual fund investments are subject to market risks, and the past performance of a scheme does not guarantee future returns. Investors should invest in mutual funds that align with their financial goals and risk appetites and choose an AMC with a proven track record.
In conclusion, SIP investments in mutual funds offer an easy and disciplined way to invest, build wealth, and achieve financial goals. The Indian mutual fund industry is growing, and investors are increasingly favoring mutual funds. SIP investments provide the benefit of rupee cost averaging and reduce risk through diversification, making it an attractive investment option. But, as with every investment, caution and due diligence must be exercised before committing to them. Investors need to evaluate their financial goals, risk appetite, and choose mutual fund schemes that match their requirements.
