How are SIP funds better than normal funds? What are the advantages of investing in SIP?
There are no special SIP funds, you can invest through SIP in almost any fund. There are tremendous advantages in investing through SIP. Good equity funds generate very good returns A SIP is a planned investment programme under which you invest a small amount of money at regular intervals. The minimum amount can be as small as Rs 500 and the frequency of investment is usually monthly or quarterly. This simple program has a number of advantages.
SIP's most important characteristic is that it does away with the need or effort to time the market. When the market is falling you may feel that it may decline further and that you should wait a while.
Often stock markets make a recovery before you notice and the opportunity is lost. When markets are rising it is scary to invest money.
Isn't it better that you wait for a correction and then make an investment? But if the correction doesn't come about, then even this opportunity is missed. And if markets are going nowhere, then what is the point in investing at all?
SIPs are also very convenient. Money deducted from your account (through post-dated cheques) and invested, is money you cannot spend. And a rupee saved is a rupee earned.
Even if each investment is small, over the time this can add up to a neat kitty. And the power of compounding can do wonders. In due course of time, a small amount can grow into a significant amount.
So, trying to find out which is the best time to invest can be a tough task. And that's why it is said that timing the market is futile.
If one could take advantage of the ups and downs that markets encounter, it would be great. And this is where SIP fits in. By the process of regular investing one gets to invest in the highs as well as the lows, and this helps in averaging out the volatility in the market. Thus, SIP is a simple device that helps you to save and invest in a disciplined manner without having to time the market.