Understanding The Positive And Negative Sides Of An SIP

1. Understanding The Positive And Negative Sides Of An SIP When you start planning for your future, there are a number of things to keep in mind before you can actually start investing. However, one of the most convenient ways to start off with this process is systematic investment plans. Now that the online trading market is available at your fingertips, you can easily start SIP online. Unlike other investment tools, SIP allows you to invest in mutual funds in small portions. But before we get into the nitty-gritties of online SIP investment, we must briefly understand the workings of a mutual fund. An MF may be explained as a pool of funds which is collectively invested in assets or securities like stocks, bonds, etc. with the primary aim of churning out capital gains. In this regard, an SIP is not an asset like mutual funds. It is merely a financial tool that helps investors in depositing part of their incomes in mutual funds and thereby generate long-term profits. So, if you want to jump in on the SIP bandwagon as well, make sure you first and foremost understand its pros and cons: 1.Admittedly, most salaried people have trouble saving up due to a lack of discipline. Once you sign up for an online SIP investment, you can make sure that a fixed amount of your monthly earnings will be saved regularly. This helps bring discipline in your investment techniques and savings regime. All you have to do is select any day of the month and the fixed amount will be automatically debited from your linked account. Since you actually end up buying units according to the market value, your NAV or Net Asset Value also keeps increasing consistently, thereby helping you to increase your wealth on a long-term basis. 2.Some would say that the Rupee-cost averaging is the most important benefit that comes with systematic investment plans. What this means is that every month’s unit purchase can fluctuate according to the market

2. variations. When the market price is low, you can buy more units and vice versa. On a long term basis, not only can you avoid getting hit by the unfavourable market conditions but the money that you invest end up generating a significant amount of surplus wealth due to the cost averaging over a period of time. 3.Yet another lucrative aspect of this scheme is the power of compounding. If you were to start SIP online, you would be able to generate monthly returns according to the current price of the units. This amount gets automatically added to the original investment amount and is invested again and again, as long as you do not opt out of the online SIP investment. This results in a long string of compounding investments which ultimately leads to high levels of monetary profits. 4.Unlike other investment tools, SIPs are popular amongst different scales of income-bearers. This has a lot to do with the fact that one can start investing in mutual funds via SIPs with an amount as low as ₹500 per month. So, even if the principal amount is not huge, systematic investment plans give you the opportunity to save and generate additional wealth through mutual funds. 5.Invest in mutual funds online via SIP allows you to have complete or partial access to your invested funds. This means that you are not obligated to complete a minimum term or lock-in period. Therefore, if you wish to discontinue your online SIP investment, it does not necessarily have to be a hassle. You will not be imposed with any hefty fines, which is unfortunately the case with almost every other investment plan. At this point, it would be helpful to go through a few limitations of SIPs as well: 1.An SIP is after all an instrument for mutual funds investment. Hence, investors cannot completely ignore the role of the mutual fund throughout the investment tenure. There will, of course, be some amount of risk related to it. If you plan on keeping the tenure short, then it may not be able to avoid the market risks or deliver any overwhelming results. 2.As stated earlier, people with different incomes can opt to invest through SIPs. However, to start SIP online, you need to have a consistent availability of money in your account. If your cash flow is unpredictable, then systematic investment plans may not be the most practical investment

3. option for you. Sooner or later, it could turn out to be challenging for you to commit to a fixed amount every month. 3.When you start SIP online, you have to decide on a certain amount which will be auto-debited monthly or quarterly. This means that you will not be able to take advantage of the ups and downs of the market and alter the investment amount accordingly. Therefore, there is no option for you to purchase more units during an upswing. Now that you are familiar with both the benefits and drawbacks of SIP, you must realize that the advantages heavily outweigh the little downsides. Hence, take advantage of this flourishing investment scene in India to cultivate a regular saving pattern and effectively churn out wealth in the long-term.