What is SIP?

Systematic investment plan aka SIP is the word of the hour and there are few methods which outweighs its return fetching capability coupled with its risk management. India being a developing country is a very conservative side when it comes to investment in mutual fund. However with the electronic media flourishing in the country, the traditional investment of gold, property or fixed deposits are slowly diminishing. Direct investment in stock market requires immense knowledge and time to watch out for profitable opportunities. However, that is not the case with SIP, as a fixed amount of investment at regular intervals let you work and sleep stress free. Is it why SIP is the latest trend in the market, let us check out few other important reasons for it.If you are still wondering what is SIP and how it can help you? Click here to read more.

  1. Demonetization. Like SIP, demonetization is also a word in everyone’s mouth. In order to curb the black money, the government took necessary steps to curb cash transactions and made banking a mandate. This initiative broke the backbone of liquidity and thereby had a major impact on real estate industry. As a result the conservative crowd came forward to explore the investment avenues, paving way for SIP to takeover in the minds of investors. This was because higher returns along with tailor-made investment options (lump sum, daily, monthly etc.), tax benefits and tax-free returns made SIP a very attractive option.
  2. Lack of credible options. Traditional investment options such as gold, property or Fds, took a hit at different point of time in every year. Tier 2 cities favorite investment option gold, took a hit with the government regulations stating limits on maximum gold holdings. Fixed deposit, another fan favorite lost its glaze with repeated downfall of repo rates making them below par in terms of return compared to inflation. Demonetization coupled with higher interest rate and heavy down payment made real estate very unattractive option. Due to all these investors were left searching for better, secure and profitable investment avenues. With SIP investors not only got the benefit of secured returns, it also gave investor the option to indirectly invest in gold or real estate with real estate or commodity mutual funds.
  3. Timing free investment. Take any investments, each of them needs certain study, and planning in order to time the investment. Investors await for recessionary trend in order in to invest in real estate or commodity market. Inversely some investors invest for exercising tax saving options and buying such instruments at March ending when the whole market is inflated. In SIP, the right time to invest is today. One of the most important feature of SIP is the rupee cost averaging which helps in buying more MF units when the NAV is low and vice versa. This results into averaging the purchase cost and substantially reduce the average per unit cost. No timing or awaiting or last minute rush to save tax, just a simple and much more effective way to earn profits and build wealth.
  4. Diversification. The benefits of many into one, is the main feature of SIP. Different instruments have their own plus and minuses therefore scattering the investment in order to safeguard the portfolio. SIP gives investors option of diversification right from the first instance. Mutual fund pools together funds of all investor and invest in different sectors of the economy. In this case if any one sector fails to deliver other one covers its loss and provide with principle protection. In other investment options, due to higher cost of investment, investors are left with little to explore any other avenues. SIPs give diversification with as little as Rs. 100 investment which helps you create a better portfolio and wealth.
  5. Tax benefit with power of compounding. This is very important factor why SIP has been the most preferred destination of investors. Government encourages investment in SIPs by providing double benefit. Firstly by way allowable deduction while calculating income tax payable and secondly giving complete tax reliefs on dividend and principle repayment. Tax benefit is the most essential ingredient when it comes to investment and add to that the power of compounding, you get unbeatable combination. Power of compounding is seen when the investment remains invested for a longer period which eventually creates wealth. As a result of this investment of an amount as little as Rs. 100 every month creates huge corpus. Not many investment opportunities give you options like this, which makes SIP an ideal investment option.

SIP makes an all-round investment option for investors which even the government promotes. India being on the course to become an economic powerhouse, there will be no stopping the SIP juggernaut. The above factors for choosing SIP will keep on rising and make other avenues futile to achieve. The shift to SIP has not been a sudden phenomenon, but a gradual rise, which was result of sustainable growth of mutual fund irrespective of ups and downs of Indian market. The returns in SIP may not be guaranteed, but it is a more sensible option to achieve any financial objective.

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Larry Newman

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