What are the 6 Key Benefits of SIP Investments in Mutual Funds?

When it comes to mutual fund investments, many are confused as the correct route of investing is not clear to them, as in investing in a lump sum or via a Systematic Investment Plan (SIP). Although both the options reap same returns, SIPs have the advantage of investing in smaller amounts at specified intervals and are best for novices who are not well-versed in their workings in-depth.

Here, we focus on the subject of mutual fund investments via SIPs (Systematic Investment Plans) by discussing its 6 most important benefits.

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1. Flexibility in investment amount

One of the most important benefits of investing via SIP is that you can choose the amount according to your comfort, starting at just Rs.500 which ensures there’s no burden on your finances like in cases where the investment amount needs to be paid in a lump sum. Furthermore, you can increase the amount of investment whenever there’s a rise in your income. Also, there’s no limit to the number of SIP or mutual funds that can be invested at a time, which speeds up your investment goals at a fast pace.

2. Complex free investment process

SIP investment can be initiated with minimal procedure either online or physically in an easy manner with minimal documentation. A few documents like Pan, Aadhaar, and IT details need to be submitted to approve your account. You can access your SIP account online and keep a tab on it at the click of a button.

3. Rupee Cost Averaging

Through SIP, you can purchase a higher number of units when the Net Asset Value of a fund is low and lesser units when the NAV is high. This concept ensures that the cost of purchasing a mutual fund unit averages out over the tenure of the SIP. There’s no need to keep a constant check on the market if you have chosen to invest via SIPs.

4. Compound Interest Benefit

SIP investment can grow significantly over a period of time even with minimum investment amounts owing to the power of compound interest. SIPs when started at an early stage generate higher returns over time.

5. Disciplined savings

SIP requires you to invest a specific amount every month, which develops the habit of disciplined saving. Also, the investments grow over a period of time as it has the potential to beat inflation. This is one of the major advantages of investing in SIPs over other investment plans.

6. Potential to give better returns

Mutual fund schemes are managed by experienced fund managers with proven track records who work towards generating higher returns with the help of their qualified team of research analysts. The long-term benefits of investing through SIPs are much better than any other conventional investment vehicles like recurring deposits, fixed deposits, PPFs, etc. Also, you can claim a tax deduction of up to Rs 1.5 lakhs under Section 80C of the Income Tax Act, 1961, by investing in tax-saving SIPs or Equity-Linked Saving Schemes (ELSS).