3 Things to Know Before You Invest Through SIP

Systematic Investment Plans (SIPs) are increasingly becoming popular among investors. This is evident by the recent data released by the Association of Mutual Funds in India. According to the report, there has beena 37.95% increase in SIP deposits from 2017-18 to 2018-19. Besides, in 2018-2019 alone, investors put in Rs. 92,693 crores via the SIP route

Experts opine that investing in SIP helps investors optimise their mutual fund investment returns over a period.

Additionally, a regular and disciplined approach towards SIP investments can help you create wealth in the long run. SIPs also help you minimise the risk associated with mutual fund investments. Periodic investments ensureyou receive the benefit of rupeecost averaging to help tackle market volatility and help generatebetter yields over time.

As a thumb rule, it is regarded that the earlier you start investing, the better returns you reap. So, if you have not yet started a SIP, nowcould be the time to begin. But, before you commence on your SIP journey, here are a few things to know.

SIP is not an investment

Often people confuse SIP as an investment avenue. But in reality, SIP is a method of investing or an investment route.

SIP allows you to invest in mutual funds at regular intervals. The intervals can be weekly, monthly, quarterly, semi-annually or annually as per your financial budget.

SIP is not risk-free

Investment in the equity market involves inherent risks. Although experts believe that SIP is better than the lump sum investment method, SIP does not make equity investment completely risk-free. However, it can reduce your losses and helps safeguard you against market fluctuations through its unique feature of rupee cost averaging.

SIP lets you enter the market at different phases. Therefore, when the market is down, you buy more units automatically. Conversely, when the markets are high, you buy fewer units. This helps you average your purchase cost and buy more units.

Do not time SIP

While you may know how to invest in SIP, it is equally crucial that you do not stop a SIP investment before its due date. Some investors tend to panic and pull out their money from mutual funds when the market goes down. Rather, it is a good idea to ride out the highs and lows and keep your financial objective in mind.

On the other hand, you may not want to increase your SIP investment when the market performs well in the expectation of better returns. This is because, in a bear market, you could lose the opportunity of accumulating more mutual fund units. Similarly, in a bull market, you could gather fewer mutual fund units at a higher price. Therefore, avoid timing the market.

Conclusion

Investors who know what is a mutual fund swear by its potential to grow wealth in the long term. Opting for a monthly SIP can be an ideal choice of investment. It can help you earn substantial returns.However, before you invest through a SIP, consider the points mentioned earlier for better investment decisions.

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