Top 5 Reasons Why SIP is the Best Option for Investment

The Systematic Investment Plan (SIP), which is typically known as SIP, will let you finance mutual funds periodically. Investors can invest quarterly, monthly, and even weekly. However, the most prevalent choice of investing is monthly. This option is also perfect for individuals who have specific purposes in mind, such as purchasing a property, a child’s schooling, and many more. SIP stands out as an outstanding way to grow funds, and their numerous reasons behind it. Let’s uncover more about SIP in detail.

Systematic Investment Plan: A Brief Description

SIP allows individuals to make a periodic mechanism of funding for themselves. To understand this better, here is a small illustration:

If an investor wants to invest Rs. 20,000 per month in the mutual fund, they can sign up for an SIP and invest in the mutual funds they have picked. The funds will get debited per month automatically from the bank account on a quarterly, monthly or even weekly basis.

Furthermore, you can view SIP as a recurring deposit that provides excellent returns. It’s an ideal option for young professionals and salaried individuals

Opting for SIP Investment: The Reasons Behind It

There are numerous reasons that prove SIP investment is an ideal choice. Here are some of the reasons to consider:

1. Ideal for Long Term Investment

As per the financial advisors when individuals wish to invest for a long time, they should choose an SIP. The main reason behind it is pretty simple: automatic deductions and periodic investing will help you stay well-motivated so that you remain invested and get to reach all your investment-related objectives on time.

During the economic recession that took place in 2007, many individuals cashed out all their funds from mutual funds. However, people who remained invested through the systematic investment plan were able to make massive profits after the market witnessed an increase.

This clearly shows that when you invest in SIP for a long time, even when the stock market is down, will help you make plenty of profits once the market rises.

2. Tax Benefits

One of the significant advantages of investing through an SIP is the tax benefits it offers. SIPs in equity-linked savings schemes (ELSS) are eligible for tax deductions under Section 80C of the Income Tax Act in India. 

Investors can claim deductions of up to Re. 1.5 lakh per year, reducing their taxable income. This makes SIPs not only a disciplined way to invest but also a smart tax-saving tool. Also, the investments made in ELSS have a lock-in period of just three years, which offers you the benefit of liquidity sooner. Banks like ICICI Bank offer SIP investment in ELSS funds, enabling investors to enjoy tax benefits while building wealth for the future. By incorporating SIPs into your investment strategy, you can maximise your returns while effectively managing your tax liabilities.

3. Rupee Cost Averaging and Flexibility

SIPs offer the advantage of rupee cost averaging, allowing investors to buy more units when prices are low and fewer units when prices are high. By investing a fixed amount regularly, this approach reduces the average cost per unit over time, which can lead to better returns, especially in volatile markets. 

Additionally, SIPs are highly flexible, making them accessible for a wide range of investors. They can be started with a relatively small investment, often as low as Rs. 500 per month, which is ideal for young professionals and those with limited disposable income. Investors also have the option to increase or decrease their SIP amount as their financial situation evolves. This adaptability ensures that investors can stay committed to their financial goals without straining their budgets. Overall, the combination of rupee cost averaging and flexibility makes SIPs a beneficial choice for wealth accumulation.

4. Helps Automate the Investment Experience

One of the key advantages of SIPs is their ability to promote a disciplined investment habit. By investing a fixed amount at regular intervals, whether monthly or quarterly, investors can build a consistent portfolio without the need for constant monitoring of the market. This approach helps individuals stay committed to their financial goals.

When you opt for the lump sum technique, you have to invest an amount manually, and on certain occasions, you might miss out on paying the instalment. Due to the streamlined method and automatic instalment options offered by leading banks like ICICI Bank, it is quite easy to manage the SIP payments. It helps to manage your SIP to meet all your long-term objectives, such as saving funds for a child’s marriage or education, buying a property, and many other things.

5. Impact of Compounding

For the systematic investment plan, compounding stands out as its biggest benefit. The investment increases over time because you begin to obtain returns on the principal amount, which keeps getting added to the invested amount. To understand this part properly, here is a small illustration:

“Let’s say you have invested around Rs. 1000 in the mutual fund, which provides you a return of 10% annually. By the end of the 1st year, the amount becomes Rs. 1100.

During the end of the 2nd year, the return rate increases to 11%, and during that time, the returns are calculated on Rs. 1100 and not the main amount, which is Rs. 1000.”

This helps ensure the growth of the corpus, and it's also the primary reason why many professionals recommend investors not to cash out their investments when the market is a bit down.

Conclusion

The SIP (Systematic Investment Plan) offers a structured approach to investing for all types of investors. It allows you to automate your investments by selecting auto-debit payments from your bank account. Leading banks, such as ICICI Bank, offer this convenient service, making it easier for investors to commit to regular contributions. The flexibility, tax efficiency, automated mode, and diversification make SIPs hassle-free and a straightforward process for all kinds of investors out there. ICICI Bank provides a wide range of mutual fund options to suit different risk profiles and financial goals. Additionally, their digital banking platform, iMobile Pay app ensures ease of management and tracking of your investments, making it a convenient choice for long-term financial growth.

It also enables individuals to make wealth according to the growth potential of the stock markets. You will find many mutual funds in the market, select the funds as per your financial goals, risk appetite, and investment horizon to fund via SIP investment. Furthermore, you should consider starting SIP as an investment option early as it will help you in creating wealth over time.