Table of content

sip benefits

Table of content

Why is SIP Investment the Best Way to Invest?

Market experts often consider a Systematic Investment Plan (SIP) in a mutual fund to be one of the ideal ways to invest in the Indian financial markets. A Systematic Investment Plan lets you invest a fixed sum of money in a mutual fund of your choice at your desired frequency for a predetermined tenure. Wondering what the benefits of SIP in a mutual fund are and what makes it the best way to invest? Here’s a quick overview of some of the key reasons.

8 Reasons Why You Should Start an SIP

Understanding the various benefits of investing in an SIP can help you make an informed investment decision. Here’s a quick overview of 8 advantages why you should consider starting a Systematic Investment Plan in a mutual fund.

  • Inculcates Financial Discipline

    Financial discipline is the cornerstone for long-term wealth creation. It is hard to bring about this discipline when you invest manually. Since a SIP requires you to invest regularly over a long period, it essentially inculcates financial discipline. Moreover, with a SIP, you can ensure that you continue to be disciplined throughout its tenure by automating your investments.
  • Enables You to Invest Small Amounts

    Contrary to popular opinion, you don’t need large sums of money to invest in the Indian financial market. One of the SIP benefits is that you can start investing in a mutual fund of your choice by contributing as low as Rs. 500 per month.
    This makes it accessible to investors across all strata. However, you need to keep in mind that certain mutual funds have a minimum investment amount you need to adhere to.
  • Eliminates the Need to Time the Market

    Many experienced traders time their entry and exit points according to the market movements to maximise their return-generation potential. However, since the markets are unpredictable, accurately timing the market consistently can be extremely challenging.
    With a SIP, however, you don’t have to time the market at all. All you need to do is invest in the set date consistently for a long period of time.
  • Leverages the Compounding Effect

    Another one of the benefits of investing in an SIP is compounding. It is a phenomenon where the returns from an investment are reinvested to earn higher returns. For instance, let’s say you invest in a mutual fund SIP and the fund distributes dividends.
    Instead of using the dividends, you choose to reinvest it into the fund itself by purchasing additional units. When you continue to do this over a long period, you not only get to accumulate more mutual fund units but also stand to earn higher dividends.
  • Brings Down the Overall Cost of Investment

    Rupee cost averaging is another phenomenon that works in your favour when you invest in a SIP. Consistently investing in a mutual fund across different market cycles and trends can lower your overall cost of investment and boost your returns.
    For example, a SIP purchases more mutual units when the markets are bearish and the NAV of the fund is low. And when the markets are bullish and the NAV is high, the SIP purchases fewer units. When this cycle continues for years, it averages out your cost of investment.
  • Ability to Discontinue Investing

    The ability to stop investing at any point in time is one of the most underrated SIP benefits. Compared to other traditional investment options like bank recurring deposits (RDs), a SIP doesn’t levy any penalty when you discontinue investing.
    However, there are some mutual funds that might levy a nominal fee for premature discontinuation. Systematic Investment Plans also allow you to temporarily freeze investments without incurring any penalties. This can be very useful during emergencies or when there’s a fund shortfall.
  • Mitigates Emotional Decision-Making

    The trading decisions of most traders tend to be fueled by emotions instead of logic. Such emotional decision-making can prevent you from achieving your financial goals. With a SIP, however, you can effectively negate emotional decision-making and impulsive activities. It helps you stay on course despite the market fluctuations to ensure you reach your financial goal as quickly as possible.
  • Potential For Higher Returns

    One of the most important benefits of investing in an SIP is the potential to earn higher returns. Since the returns from a Systematic Investment Plan are market-linked, you stand a chance to earn exceptionally high returns, especially if the market performs well. These returns can far outpace that of traditional investment options and may even beat inflation.


With this, you must now be aware of the various benefits of an SIP in a mutual fund. Keep in mind that Systematic Investment Plans are not only restricted to mutual funds but can also be used to invest in other assets like stocks as well.

In addition to the benefits of investing in a SIP mentioned above, there’s also another advantage - the SIP tax benefit. When you start an SIP in a mutual fund like ELSS (Equity-Linked Savings Scheme), you become eligible to claim the investments in the fund as a deduction from your total income. Section 80C of the Income Tax Act empowers you to claim up to Rs. 1.5 lakh per financial year as a deduction, helping you lower your overall tax liability.

Frequently Asked Questions

To start an SIP, all you need to do is log into your mutual fund platform. Then, navigate to the fund you would like to invest in and select Systematic Investment Plan (SIP) as the investment mode. Specify all the details like the amount you would like to invest, the tenure and the frequency. You can also set up a one-time mandate to ensure you don’t skip any investments.

An SIP insurance is a life insurance policy that covers SIP investors at no additional cost. The amount of life insurance coverage is directly proportional to the monthly investment amount. In case the investor dies during the SIP tenure, the death benefit sum assured under the life insurance policy is paid out to their nominee. The conditions that need to be met to start an SIP Insure may vary from one Asset Management Company (AMC) to another.

Yes. You can make a lump sum investment in the same mutual fund where you already invest via an SIP. These lump sum investments can be made at any point in time during the plan’s tenure.

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