After opting for a mutual fund scheme, you will come across two different investment choices. Those two choices are a lump-sum investment and a systematic investment plan (SIP). Under lump-sum allocation, you are required to make a one-time payment for investing in the scheme. Conversely, under SIP, you can choose to make payments regularly. In most cases, regular intervals of payments are monthly. While it is okay to opt for lump-sum investments in case you have access to the large sum, if you don’t, you can go ahead with SIPs.
Why SIP?
There is a wide range of reasons why you should consider choosing the SIP route over the lump-sum one. One of the reasons is that it pays off higher returns in the long term, that too with the guarantee of substantial growth in investments. Also, this mode of mutual funds investment is regarded as a balanced investment choice. Multiple units are purchased whenever the price is low and fewer units are bought as the price goes higher and higher, and, therefore, in the long run, the cost is lower than the actual cost. SIPs are considered a smart choice for those who seek a deduction on their income tax returns.
Are there any merits to SIPs?
SIPs come with a wide range of merits such as:
- These plans are convenient:
It is very easy to understand and use SIPs. There are not many terms and conditions that are laid down regarding SIP investments, and thus, investors who are new to investing in mutual funds may consider the transparency offered by this investment mode and start with it easily. All that is required on their part is to choose one among the different mutual fund variants that are available. Then, after that’s done, leave a standing instruction with the bank for an auto-debit from the bank account into the mutual fund scheme every month. Also, it is easy to register for a systematic investment plan online, which is also a fast and hassle-free process. Generally, it takes about three weeks for the SIP application to get validated by the officials. After that, you get free access to your mutual fund portfolio.
- These plans are flexible:
Another major benefit of SIPs is that they are highly flexible. With these plans, it is up to you to continue with the SIP or not. If your financial situation is not great and you are unable to or unwilling to invest further, the SIP can be discontinued. Also, no penalties are levied on you in case you decide to stop going on with the SIP investment.
- They are not a burden on the wallet:
As stated earlier, under lump-sum investments, you are required to make a payment at once. Conversely, with SIPs, you can opt to make monthly payments that too, these investments can also be of a low sum. That’s why these plans are very light on the wallet.
- Suited for conservative investments:
SIPs are very suitable for investors who aim to accumulate greater returns in the long term but want to avoid the risks associated with the market. An investor is not required to make any lump sum payment and is expected to only pay small amounts regularly. Hence, the mutual fund investor doesn’t need to worry about the budget if they have opted for SIPs. Even investors who do not have a regular source of income may opt for SIPs. All they need to do to determine their monthly investments is use the SIP calculator.
What is a SIP calculator?
Available online for free, the SIP calculator can be used for both determining the goal and the required amount for monthly investments. However, if you were wondering why to use them, here are some of the reasons:
- They are easily accessible:
A simple Google search will show you innumerable links for SIP calculators. They are not very hard to find. Apart from accessibility, they are also very easy to use. All that’s required is to add the required amount, duration of investments, and the expected rate of return.
- They can also be a guide to making investment choices:
One of the major merits of using SIP calculators is that they provide estimated returns on numerous investment schemes. This helps you in screening different options for investment. Also, just by changing the amount of your investment or modifying the tenure of your investment, you can see your returns might be affected. In turn, this provides you with the necessary guidance to select the best sum of investment as well as the duration.
- They also provide quick and accurate results:
To get the answer by using the SIP calculator, you are required to provide details such as the amount of SIP installment, duration, and expected rate of return in a year. After providing such details, these calculators provide you with accurate results in a matter of just a few minutes. Only with one calculation, you will know the total required investment amount, duration, and the expected rate of return that are required for reaching your financial goal.