How SIP works in mutual fund investment
With different types of mutual fund schemes available in the market, one can easily create a portfolio and diversify investments based on their financial goals and risk appetite. But most of us still procrastinate the investment due to a lack of knowledge. Most people unnecessarily complicate the process by thinking too much. When to start investing? How much to invest? What if you invest in the wrong plan and all your investment is lost?
Have these and more questions stopped you from investing in mutual fund schemes? Don’t worry, we have the answer to all these investment issues – invest via SIP online.
What is SIP?
You must have heard the popular saying – drop by drop fills the bucket over time. SIP works in the same way. A systematic Investment Plan (SIP) allows you to invest a small amount periodically. So you don’t have to invest in a lump sum and worry about losing your money. The frequency of investment in SIP can vary from weekly to monthly and quarterly.
How does SIP work in mutual fund investment?
Investing in any mutual fund via SIP help you build wealth in the long run. Moreover, when you invest through SIP online, the amount is automatically detected from your bank account on the date you have mentioned.
In exchange for the amount you invest through SIP, the mutual fund houses an allotted number of units for you. Suppose the NAV of a mutual fund you have invested in is Rs 20. For your investment of Rs 1000, you will get 50 units. And as the NAV of the mutual fund keeps growing, if the NAV of your mutual fund increases to Rs 30, it automatically grows your investment to Rs 1500.
That’s how your investment grows.
Benefits of investing in mutual funds via SIP
- Power of compounding
This is among the biggest benefits of investing via SIP. Through the power of compounding, you only get returns on your investment but by investing your profit as well. So to make the most out of this benefit you must start investing in the mutual fund as early as possible.
- Discipline investment
Through SIP you invest a small amount periodically be it weekly, monthly, or quarterly. Moreover, the amount you invest gets automatically deducted from your bank account on a date you have chosen. That helps inculcate discipline saving habits. Plus, this regular investment is among the key advantages that help you build wealth over time.
- Easy to invest
Investors who keep busy and don’t have the time to manually transfer the amount periodically love this feature the most. Here all you have to do is apply in your bank for auto-debits. Set the amount and the date you want to transfer the amount. So you don’t have to worry about paying your installments manually or missing it altogether.
Whether you are an amateur or experienced investor, SIP is an excellent way to invest in mutual funds. So, don’t waste any more time and start SIP early to get the benefit of the power of compounding.