Generally, there are two ways of investing money to let it grow for future use. One is the SIP or Systemic Investment Plan and the other is the lump sum investment of capital in the form of fixed deposits or shares in the financial institutions. Both have been trusted means of wealth creation for future use. In case of SIP, the money is to be deposited in the form of Mutual Funds regularly over a long period of time.
The lump sum investment of capital is a one-time investment. While the idea of investing money in lump sum fixed deposits go well for those having a large sum of money in their disposal, the majority of the middle-income group of people refer to SIP as a preferable method of wealth creation. They help you to achieve long-term goals, and it does not prove to be a burden on your monthly expenditure. Here are the few reasons, which make SIP as the most preferable investment tool for the investors.
- No Big Investment
The first major advantage of the SIP is that you can invest as low as Rs 1000 per month on a mutual fund as a SIP. In a year, in this way you get to invest Rs 12000. This can never be the case in the Fixed Deposit Investment. There you need to invest Rs 12000 at a time. This can sometimes prove to be difficult for the lower income group or the middle-income group of the country.
- No Stress of Timing The Market
Since the SIP is done on a monthly basis, you do not have much worry about the timing of the market. In most of the countries, the financial market is volatile nowadays. At certain instances, the rate for the fixed deposits is quite high, while in some other time the rates are very low. So, when you invest money as a big amount you need to be cautious about the rate of interest that is prevailing in the market at that time. Contrary, in case of SIP, the money is invested as the small amount over a period of time, so at a certain time period you would get a high rate of interest in it and at some stages, you may get a low rate of interest.
- Rupee Cost Averaging Effect
In case of SIP, you can invest your capital at different levels or conditions of the market. The market being volatile, sometimes it can be in the peak form. At that time your fund manager would advise you to buy lesser units of SIP. At some other stages, the market may be low; it is the perfect time to invest in more units of SIP. In this way, ultimately you can end up with higher gains in the market.
- SIPs have a Compounding Effect
One of the major advantages of SIP is that here the capital invested by you grows exponentially in a compound manner. The money is invested by you in a systematic and regular manner is compounded way over a long time period. This also helps you to reach your future goals like education of your child or building a house.
So, these were the benefits of investing money in SIP over the lump sum investment.