SIPs have become the most favoured route of investments for not only the investors but also Financial Advisors in India. That is not surprising since they come with considerable benefits.
Become a Disciplined Investor
A SIP helps you discipline yourself. You can commit a fixed amount each month to investments, and the amount gets invested at the predetermined date. This ensures that money does not lie in your savings account @ a meagre 3.5% and there is no temptation to spend that amount as it is not there to spend.
Rupee Cost Averaging
Enormous sums of money have been lost by investors in a bid to time the market. But no one has been able to do it consistently. When experts have failed, what about a rookie investor. It is useless, even attempting to time the increasingly volatile markets. SIPs ensure that a fixed amount is invested irrespective of the ups and downs in the market and hence the cost of acquisition of investments is averaged out.
The timeless principle is "Buy Low Sell High". However, investors tend to sell out when there is a fall in the markets due to panic. A rising market tempts them to enter the markets at high levels. SIPs help to overcome this problem.
Achieve your Financial Goals
Your future financial goals like buying a car, buying a house, child's education can be converted into the required monthly SIPs. For example, if you need INR 6 lakhs after 4 years to purchase a car. Assuming that your investments earn 15% per annum, you will need to save INR 9,198 per month to achieve a corpus of INR 6 lakhs. By converting your goals into monthly investments, you can view the achievability of your goals clearly and this also motivates you to stay on track with your investments.
The biggest advantage of regular long term investments, Compounding Benefit. The investments made continue to grow year on year and the invested profits participate in growth in future years.
Once initiated an SIP can go on for as long as you want it to run with no further intervention required from your side. With a simple instruction, the SIP can be stopped at anytime.