Systematic Investment Plans or SIPs are one of the most popular ways of investing in Mutual Funds. SIPs help inculcate financial discipline and build wealth for the future. With SIPs, you can start small and gradually build a corpus in a systematic and planned manner.

Systematic Investment Plan (SIP) is an investment route offered by Mutual Funds wherein one can invest a fixed amount in a Mutual Fund scheme at regular intervals– say once a month or once a quarter, instead of making a lump-sum investment. The installment amount could be as little as INR 500 a month and is similar to a recurring deposit. It’s convenient as you can give your bank standing instructions to debit the amount every month.

SIP has been gaining popularity among Indian MF investors, as it helps in investing in a disciplined manner without worrying about market volatility and timing the market. Systematic Investment Plans offered by Mutual Funds are easily the best way to enter the world of investments for the long term. It is very important to invest for the long-term, which means that you should start investing early, in order to maximize the end returns. So your mantra should be - Start Early, Invest Regularly to get the best out of your investments.

The SIP route is the preferred way of investing in stocks and Mutual Funds because it allows you to participate in the market while managing risk better.

SIPs work on the following two principles-

SIPs can help you escape market volatility by eliminating the guessing game of market performance. Regular investing ensures that the average purchase cost is evened out in the long run.

When the markets rise, you get fewer units, and when the markets fall, you receive more units. This minimizes your risk and ensures you acquire investments at a lower average cost per unit.

Saving a small sum of money regularly for long periods of time can have an exponential impact on your investment because of the effect of compounding. The following examples illustrate that:

‘Rahul’ starts investing for his 60th birthday at the age of 40.

Assuming returns of 7% and a monthly investment of Rs. 1000, his total corpus at the end of 20 years will be Rs. 5,28,000.

‘Sachin’ starts investing for his 60th birthday at the age of 20.

Assuming returns of 7% and an investment of Rs. 1000 per month, his total corpus at the end of 40 years will be a staggering Rs. 26,56,436 -- almost 5 times the corpus accumulated by Rahul.

Regular investments spread over longer durations yield greater returns and profits.

Financial Discipline: The regularity of SIPs breeds financial discipline. It encourages forced savings and helps you build a corpus without cramping your lifestyle.

Flexibility: SIPs provide greater flexibility in investing. You can increase or decrease the amount of investment at any time.

Convenience: SIPs are a hassle-free mode of investing. You can easily do it online with a one-time set of instructions. You SIPs will automatically start getting accumulated.

Lower risk: Lump sum investments may expose you to greater capital risk. A SIP spreads your investment over time and reduces the risk to capital and will help you navigate volatility better.

* Mutual Funds are subjected to market risks. The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. You are recommended to obtain specific professional advice from before you take any/refrain from any action.