The first benefit of SIP (Systematic Investment Plan) is that the risks involved in your investments are being reduced. Other than that when you are investing directly into shares in the share market, an ordinary investor can only able to buy shares of only a few companies. Whereas investing through mutual funds enables you to buy shares of lot of companies. Due to this diversification the risks involved in our investment is being reduced a lot.
SIP – Systematic Investment Plans
As the investment risk gets reduced when you invest in multiple shares the risk gets reduced very much too when you make investments in multiple (mutual) funds. One thing to be noticed is that by doing this our profit will never get reduced instead it increases. Why because, instead of investing a bulk of amount in single day without knowing whether share market goes up or down, splitting up the same investment amount little by little and investing it every month has definitely got chances for investors to pay less price.
Let us see this with an example: Assume that you had Rs. 12,000 on January 4, 2011 and you wanted to invest that in a best mutual fund. Your friend advices the HDFC Top200 to be a good mutual fund and if you have invested your money into that – you must have paid Rs. 225.59 per unit.
On the other hand if you would have made the investment through SIP by splitting the same amount as Rs. 1000 per month (4th of every month) for 12 months the unit price would had been at Rs. 202.46 approximately. This means that you have saved about 10% of your investment.
But can you expect the same scenario every time? The answer would be probably “no”. To happen like this every time you need a lot of luck. However, though not up to this extent the SIP investment will definitely keep you profitable.
Another advantage of SIP is to take our monthly salary to the savings directly. Each and every month as you receive your salary, you can buy mutual funds from it. Certain mutual funds have been made to invest every week or even on daily basis. Based on your income and savings, you can choose your timings.
With certain changes in SIP investment plans, there are methods tailored to harvest more benefits out of SIPs. For instance, based on the share market’s ups and downs you can add more or reduce a little from your monthly investment and such plans do exist. Certain funds have the facility to invest an amount every month, more or less which is not fixed. Without even redeeming money from your bank account there are facilities to make your investment directly through online.
In short – the SIP is a beneficial plan for all sorts of investors in a highly sophisticated way, reducing the risks and hikes the possibility of high returns. Especially, for a long-term financial goal for any particular plan this method will give you high profits that everyone can do.