The 7 Main Benefits of Systematic Investment Plans (SIPs)

Systematic Investment Plans (or SIPs), are one of the most recommended ways of investing in the markets. SIP’s have many benefits over lumpsum investments, that we discuss in this blog post. 

1. Ease of Investments

Investing via SIP’s are very easy. You simply need to give your bank instructions to allow an auto-debit, and your chosen amount will be automatically invested on the date of your choosing. 

There is no need to fill multiple application forms or remember to make the investments. Technology handless it all for you. 

2. Makes Market Timing Irrelevant

Equity markets can be highly volatile, and trying to figure when is the best time to invest can often be very confusing. Investor’s who try to time the markets, often end up investing at the wrong time. 

By spreading out your investments, in small sums across an extended period of time, you ensure that you invest across all market conditions. This helps make trying to time the market irrelevant. 

3. Forced Investment

It is very easy for investors to get tempted by shorter-term consumption, leaving little money to be invested for their longer-term goals. Investors often choose to have their SIP date, within a few days of their salary hitting their bank accounts. 

This automatically enforces a discipline of making sure that you set aside your investments for your important longer-term goals, and do not end up wasting the money on more frivolous short-term consumption. 

4. Small Investment Sums

SIP’s allow you to invest small and more manageable sums of money at a regular period. Most investor’s find it a lot easier to save small sums of money every month, as compared to investing a larger sum all together at one go. 

5. Rupee Cost Averaging

SIP’s allow you to take advantage of rupee cost averaging. Since you are investing the same amount of money every month, you will end up buying a large number of units when market prices are low, and a small number of units when market prices are high. 

By continuing to invest in weak market conditions, you effectively end up lowering your average cost of investments. 

6. Power of Compounding

By encouraging regular investments over a long-period of time, SIPs allow you to take advantage of the power of compounding. Compounding effectively describes the impact of your profits earning profits, which helps lead to an exponential rise in your wealth over a longer-period of time. 

7. Helps Manage Your Emotions

The high volatility in equity markets, can lead to large swings in investor emotions. This is especially true, if you have invested a large lump-sum prior to a market correction. 

When you know that you are investing systematically across market conditions, you are no longer swayed by market volatility. In fact, you can even begin to see market conditions as favourable to your wealth creation, as they allow you to average down your cost of investments.