Benefits of Regular Investments in SIPs

This article describes how cost averaging can be achieved using MF SIPs. It also talks about the benefits of SIPs against cost averaging in stocks.

If only it was so simple!! Most of us lack the discipline to invest regularly – and therefore, most of us don’t make good profits from stocks!! The only way to make profit in stocks is through regular, disciplined investments for the long term – and that is hard to practice!

But there is a tool available that can make this really easy for you – and that is Systematic Investment Plans (SIPs) offered by Mutual Funds (MFs) for almost all of their schemes.

 Cost Averaging and Systematic Investment Plan (SIP)

Cost Averaging calls for fixed, regular investments. And SIPs do just that. They are just made for each other!

It is very difficult to make disciplined investments every month – which is required in Cost Averaging. SIPs do that, and they do it automatically! Therefore, Systematic Investment Plans (SIPs) are the best way to practice Cost Averaging.

Advantages of Systematic Investment Plans (SIPs)

Since SIPs offer a way to practice Cost Averaging, they also offer all the advantages of Cost Averaging 

1.Remove the element of timing the market from investing

2.Reduce the average cost of acquisition

Other benefits

Apart from these, there are other great benefits:

1.No Discipline needed: Choose the scheme, give the cheques, and you are done! You don’t need to remember anything – the MF does it for you!

2.Compulsory Saving: Since you make a commitment to make a certain investment every month, it results in compulsory savings. If you are investing on your own every month, something might make you not invest during some months. But with SIPs, you end up investing (and thus, saving) every month.

3.Very low monthly investment possible: SIPs can be started for amounts as small as Rs. 100 per month!! This limit is far lower than the limit for one time, lump sum investment in the MF schemes. So, whatever your capacity to invest, you can invest using SIPs.

4.Favorable entry load: Some MF houses have favorable entry loads for SIPs – they either charge less entry load, or charge no entry load at all. 

A tip regarding SIPs

You can diversify using SIPs. Since the minimum investment required for SIPs is very low, you can split your amount between 2-3 good MF schemes. Thus, instead of investing Rs. 5000 every month in the SIP of just one scheme, you can probably invest Rs. 2500 in 2 different MF schemes. This way, you can diversify easily.

So, what are you waiting for? Go ahead, invest using SIPs, and reap the benefits of regular investments without any effort!