Benefits of Systematic Investment Plan

In the earlier post, we had discussed about Systematic Investment Plans . Lets make an effort to understand how it is better than other vehicles of investing in mutual fund.

We have already discussed that Systematic investment plans give  the investor an option to save regularly( just like a recurring bank deposit) and then invest these savings  in a planned manner in mutual funds. These small periodical savings become big chunk of money over a period of time. With this disciplined manner, the investor enjoys the benefits of compounding.

 Another advantage of SIP is that an investor  can enter or exit the market irrespective of the time. The biggest problem in the equity market is to know when is the right time to invest or to exit. SIP actually helps you to solve the timing issue to enter and exit the market.  In a falling market, you tend to add more units while in a rising market , you end up gaining on the NAV front. So it provides you ample opportunity to spread out risk.

SIP provides you with the option of  maintaining a diversified portfolio. 

Diversification reduces the overall impact on the returns from a portfolio, on account of a loss in a particular company/sector.

But the best advantage of going in for the SIP is that it doenot strain our day today finance.  You can start an SIP with as low an amount as Rs 500 per month . This makes investing lot easier and very favourable among the small investors.

Last but not the least even though the fund amount is small, your fund is managed by professionals who know the market . Thus for many of us who do not have the desired expertise and are too busy with our vocation to devote sufficient time and effort to investing in equity, mutual funds offer an attractive alternative.