Investment is an essential part of life. Following this good habit allows people to save money for their future financial requirements and manage them comfortably. However, if it is about saving money one has to make sure it is done using the right tool. This is where the confusion often occurs: whether to go for market linked securities or the non-market linked securities?
Before investing in Mutual Funds, you must be aware all the basics like how to invest in SIP, how to invest in Lump sum, what are the advantages and disadvantages of them etc.
While both types of investment have their own pros and cons, SIP – a market linked investment plan yields higher returns. Therefore, if your expectations from your investment are limited to high returns, SIP deserves your attention.
Check out the advantages of SIP before investing in it. But, before we get on to that, below is a little more about Systematic Investment Plan.
What is an SIP?
SIP stands for Systematic Investment Plan which is very similar to recurring deposit schemes offered by bank, but the former is market-linked. This scheme lets people buy expensive mutual funds bond by paying the entire cost in smaller premiums. The deposit frequency can be weekly, monthly or quarterly.
Benefits of SIP
You can choose SIP for short term or long term investment like for 1 year, 2 year or even more as best investment plan for 3 years or 5 year etc.
- Power of Compounding: When you invest your money in mutual funds, you earn dividend on it. These returns get compounded and accumulated over time. This is very much like what happens in FD. The only difference, as said above, is higher returns.
- Disciplined Investing: Regular investment through SIP inculcate the discipline of savings and investment which leads to long-term wealth accumulation. Plus, the investment amount is very insignificant to the maturity value and thus, it helps develop a habit of investing.
Additional read: How to Benefit from SIP Mutual Fund Investment in India?