Systematic investment plan is important to life as it decides your future and fate and thus it is important to understand the theory behind it and adopt a strategy that can help you get maximum returns in minimum period of time. When it comes to investment, SIP (Systematic Investment Plan) is one of the most important tools that can be utilized.
Even for the cash-rich, SIPs reduces the chance of investing at the wrong time and losing their sleep over a wrong investment decision. However, the true benefit of an SIP is derived by investing at lower levels. All we can say is that there are plenty of reasons for investing in SIP and with this article we are going to describe some of those points those will underline its importance.
Power of compounding- Compounding is one of the most fundamental principles that SIP work on and even if you start with a little money it has the potential to offer you a big return in long run. Investment gurus advice that a person should start investing right at their earliest age. All we can say is that the longer the (compounding) period, the higher the returns.
Dollar cost averaging- This fact is particularly true for those who are intending to invest in equities. When you invest the same amount in a fund at regular intervals over time, you buy more units when the price is lower. Thus, you would reduce your average cost per share (or per unit) over time. This strategy is called 'dollar cost averaging'. With a sensible and long-term investment approach, currency cost averaging can smoothen out the market's ups and downs and reduce the risks of investing in volatilemarkets.
It makes you financially disciplined- Discipline is important in every sphere of life and same goes true for investment. If you are not disciplined you may not get the desired result at the end. Once you decide an SIP you need to stick into it and keep it active.
Convenience is another factor that makes SIP such a popular investment tool among investors. And with the advent of internet everything can be done electronically without having to stand in a que anywhere. You have to just submit cheques along with the filled up enrolment form. The mutual fund will deposit the cheques on the requested date and credit the units to one's account and will send the confirmation for the same.
No entry load and exit load- The best thing about SIP is the lack of entry and exit load.These makes SIP the most convenient way of investing.About the author- David Birnbaum is an EVP, New York Business Unit at Sandata Technologies and has worked in various capacities like Business Development Executives and has helped companies invest in various financial products.