Why is SIP a preferred way of mutual fund investments?

Sudhakar G
·2 min read

SIP is an appropriate route to achieve a financial objective, especially when you are chasing investment goals.

A Systematic Investment Plan (SIP) is an avenue offered by mutual funds to potential investors for a disciplined manner of investment. Mutual Funds provide an investor with the option to reinvest either their returns or earnings. The power of compounding comes into play when an investor reinvests in a particular plan to enjoy its benefits, without switching around to multiple investments.

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SIP offers an option to invest a fixed amount of money in a particular mutual fund plan at regular intervals. The pre-defined intervals of investments offer a disciplinary approach to putting money in the bank. For example, if you invest Rs. 1000 in a mutual fund monthly, it can reduce the vulnerability of your investment to market fluctuations.

Contrary to investing large sums in a scheme, your financial security with a SIP is greater. Numerous mutual fund providers offer the Systematic Investment Plan to customers because the odds of returns and earnings are higher. Although a customer doesn’t make a lot of money at once, depending on how much is invested, steady earnings and returns can be expected.

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Another advantage of the SIP is that this mutual fund strategy can protect you from many harms. Some risks of a mutual fund include short term volatility, impulsive reactions, over-expenditure and other factors that are common. With an SIP, your expenditure is safer and more convenient to invest in any given equity market.

Another factor that influences the performance of SIP investment is the compound rate you’ve signed up for at the beginning. If the compound rate predicted is close to 10% on an average per annum, it can be considered a good investment. Many transnational and growing firms deal with mutual investments based on market performance data.

Any mutual fund provider will be able to guide a potential investor towards profitable returns with accurate data. Whether the investment is for large-cap equities or mid-range equities, a steady return rate is often quoted above 10% by mutual fund schemes. This can be a marketing gimmick, but many investors have accepted the data as accurate.

In the case of long-term debt based mutual fund schemes, the rate of return usually ranges from 5-9%. Being higher than what banks generally offer, an SIP can return profits if you are looking to learn the market trends and invest accordingly.

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