#FinancialBytes: 5 top reasons why you should invest in SIPs
A Systematic Investment Plan, commonly known as SIP, is a smart financial planning tool that lets an individual invest money in mutual fund schemes in a convenient way.
It is a planned investment method and helps investors develop the habit of disciplined financial saving by investing a small but fixed amount at regular intervals.
Here are 5 reasons why you should invest in SIPs.
Reasons why SIPs are a good investment option
SIPs help people invest regularly without being hard on wallet
One of the important reasons for investing in SIPs is that it helps impart financial discipline in the investor's life.
As investors are required to invest a fixed amount, which can be as low as Rs. 500/month, at regular intervals, they can develop the habit of investing regularly over a period.
This helps them save and invest regularly to build wealth for the future.
One can finance their dreams with the help of SIPs
SIPs help investors to finance their dreams and achieve long-term financial goals which can be a savings goal, buying a house, retirement fund, or child's education, etc.
For many people, saving or investing huge amount at once for reaching their financial goals could be difficult.
In such cases, SIPs would help them build a corpus by making regular investments over a period of time.
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Reason #3: Investors can enjoy the power of compounding
SIPs also help investors in making the most of compounding by earning interest and reinvesting the earned interest. This can help them convert a small amount into a large corpus. SIPs are ideal for youngsters; the earlier one starts with SIPs, the better it is.
With SIPs, investors can minimize risk of equity fluctuations
SIPs require investors to make a periodic investment in equities through mutual funds. So, they can go through the ups and downs of equities easily and minimize the market volatility risk.
Whenever the equity market goes up, investors would earn fewer shares, but if it goes down, they buy more shares.
As a result, over a period, timing the market gets unnecessary for investors.
Investors can enjoy the benefit of diversification
One should not keep all their eggs in one basket. The same principle applies when it comes to investing, too.
Experts say people shouldn't put all their money in one asset; it's always better to diversify. Most experts recommend wider exposure across asset classes, sectors, market capitalizations, etc.
SIPs help investors enjoy the benefit of diversification to spread out risks and earn higher returns.