What is a Mutual Fund SIP?

Mutual fund SIP investment plan SIP is one of the most popular investment options for retail investors in India. As per AMFI data (30^th June 2022), total mutual fund SIP accounts stood at Rs 5.5 crores. In FY 2021-22, around Rs 1.25 lakh crores was invested in mutual funds through the SIP route. Despite high volatility in the equity market, in FY 2022-23 average monthly investments through SIPs is over Rs 12,000 crores. In this article, we will discuss why SIPs are ideal investment options for long-term investors. 

Benefits of SIP

• Through mutual fund SIP, you can start investing with small amounts (Rs 500 or Rs 1,000) from your regular savings. 
• You can start investing in mutual fund SIPs early in your working career and invest for long tenures to get the benefits of compounding. Compounding is profits made on profits re-invested. Compounding helps in growing your investments exponentially over a long period of time. The longer the investment tenure higher is the power of compounding. 
• Since your investment amount at the start of your SIP tenure is small, you are less affected by volatility compared to relatively larger lump sum investments in mutual funds. 
• SIP mutual fund helps you remain disciplined in your financial plan. A disciplined investor manages to overcome behavioral biases like greed and fear, herd instincts, loss aversion, etc, which affect many investors. These behavioral biases can be very harmful to your financial interests. 
• SIPs investment makes market timing irrelevant. Even expert investors find it extremely difficult to time the market. You do not need to time the market in SIPs because you are investing at various price levels.

• SIP can help you take advantage of market volatility by averaging the cost of the investment (Rupee Cost Averaging). Rupee Cost Averaging can reduce the cost of acquisition in deep corrections or bear markets and can generate potential superior returns for investors in the long term. 
• SIP in mutual funds is ideal for your long-term financial goals because you can start early with small amounts of investments from your regular monthly savings and get higher returns over long investment tenures. 
• As you progress through your career, income and savings grow with the passage of time. You can use the SIP Top-up facility to increase your SIP installments by a fixed amount or percentage at regular intervals (half-yearly, yearly, etc). SIP Top-up can help you reach your financial goals faster and/or create more wealth. 

Conclusion

You should start investing in mutual fund SIPs early in your working career to leverage the power of compounding and create wealth over long investment tenures. You should always have long investment horizons in SIP. For equity funds SIPs, ideally, you have 10 years plus tenures; at the very least, you should have 5-year tenures.  You should not stop your SIPs if the market stops falling, rather you should take advantage of corrections through Rupee Cost Averaging in SIPs by accumulating units at lower prices. You should always invest in mutual fund schemes that are suitable for your risk appetite and financial goals. You should consult with your financial advisor if you need help with mutual fund investment or starting a SIP.