How Does SIP in Mutual Funds Help in Wealth Creation?

Author : Quantum AMC | Published On : 30 Aug 2021

The meaning of an SIP is that it is a mode of investment in mutual funds, wherein the investor puts in a fixed amount of money every month, similar to a recurring deposit. The meaning of an SIP is in its full form; Systematic Investment Plan. An SIP allows the investor to buy units on a specific date every month. The investor decides the amount that he wants to invest in the mutual fund scheme.

The meaning of investing in an SIP in mutual funds is that it comes with diversification benefits which help during market ups & downs. It also frees the investor from timing the markets. l. An SIP brings with it rupee cost averaging, which means investors can get more units when the prices are low, and less number of units when the prices are higher. An SIP enforces the habit of disciplined investing, allowing the investor to invest a fixed amount each month.

It gives the opportunity for high risk with the potential for high reward. Retail investors’ interest in mutual fund SIPs has gone up, inflows into equity mutual fund schemes surged to a record high in July, a 350% jump from June as per data from AMFI.1.

Mutual funds are generally a preferred option for investors looking to invest for the first time.  This is primarily due to the diversification it offers as well as professionally fund management. It is one of the most convenient ways of investing as investors get to decide the amount and the frequency. In addition, SIP helps the investor with benefit of compounding over time.

The SIP approach helps investors decide where to invest, how much to invest and when to start, pause or cancel an SIP.  However, investing is a long-term game and one redeems to achieve one’s goals and not as a knee-jerk reaction to the market ups & downs. The secret to creating wealth from mutual funds is regular tracking of the risk-reward tradeoff in investments.

To choose to invest in which type of Mutual fund for SIP investment depends on the investor needs. At the end, the investor’s needs to assess whether their financial goals are met with minimal exposure to risks. Therefore, one needs closely monitor the weights allocated towards the portfolio.

 

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Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

1 https://www.livemint.com/news/india/net-inflows-into-equity-mutual-funds-hit-record-high-in-july-sips-climb-11628505554850.html