If you're interested in adding mutual funds to your portfolio but lack the necessary capital to purchase units in your preferred fund, a Systematic Investment Plan (SIP) may be the solution. Many novice investors may not be familiar with what a SIP is and how it works. If you're also unfamiliar with this concept, it's important to understand what a SIP is and the benefits it can provide.

What is a SIP and How Does it Work?

• A Systematic Investment Plan (SIP) involves investing small amounts of money periodically in an asset or scheme of your choice.
• This strategy is commonly used for mutual fund investments, although it can be applied to any other asset or investment scheme.
• When you start a SIP in your preferred mutual fund, you can contribute as little as Rs. 500 or less, depending on the fund's terms and conditions.
• These investment contributions can be made on a monthly, quarterly, semi-annual, or annual basis.
• To see how your regular SIP contributions will grow over time at a given expected rate of returns, you can make use of a SIP calculator.

4 Benefits of a SIP

If you’re still unsure about starting a SIP in your preferred mutual funds, get to know why this could be an advantage. Some of the top benefits of a SIP include the following.

1. Rupee Cost Averaging

Rupee cost averaging means your investment cost averages out over time, maximizing net returns. By investing the same amount periodically, regardless of market movement, the average cost of your investment decreases over time, increasing your net returns.

2. The Power of Compounding

SIPs reinvest your periodic returns in the funds you choose until maturity, leading to compounded returns and exponential growth. The longer you invest in a mutual fund via SIP, the more you benefit from compounding.

3. Affordable and Convenient Investments

SIPs make it easy to start investing with small sums of money. You can invest in one or two mutual funds and diversify your portfolio over time by starting SIPs in other mutual funds.

4. No Need to Time the Market

Regular and periodic investments through SIP eliminate the need to time the market for specific entry or exit. This allows you to spend more time in the market and avoid short-term market volatility, ensuring long-term investment growth.

Start Your SIP Early to Maximise Benefits

Even if you have as little as Rs. 500 left each month, you can put that money to good use by investing in a mutual fund periodically and get the many SIP benefits discussed above. Not sure how to get started? Mutual Fund investments on Fi are commission-free.

With its intuitive user interface, suited for novice & seasoned investors, you can select from over 900 direct Mutual Funds. Plus, Fi's 100% secure as it functions under the guidance of epiFi Wealth, a SEBI-registered investment advisor. To help simplify the steps involved, you can invest daily, weekly, or monthly via automatic payments or SIPs — created with one screen tap. Moreover, Fi offers 100% flexibility with zero penalties for missed payments.

Frequently Asked Questions

1. Is a SIP beneficial?

Yes, a SIP can be advantageous in many ways. Common SIP benefits include disciplined and affordable investments, the benefit of compounding and rupee cost averaging.

2. How much should I invest via a SIP?

The amount of SIP investments you need to make depends on your budget and your financial goals. A SIP calculator can help you plan your investment strategy easily.

3. Which SIP gives the highest returns?

A SIP itself does not give you any returns since it is only a strategy and not an asset. The returns you get by starting a SIP depend on the mutual funds you invest in.

4. Is a SIP 100% safe?

No investment is 100% safe. The risks associated with your SIP depend on the mutual funds you invest in and the volatility in that asset class.

5. Are SIP returns guaranteed?

SIP returns from debt funds or fixed-income funds may be guaranteed, but returns from SIPs in equity funds depend on the performance of the market and the assets in the fund’s portfolio.