Table of Contents
A Systematic Investment Plan (SIP) is a disciplined investment strategy that allows you to contribute a fixed amount regularly to mutual funds, providing a flexible approach to building your investments over time.
This method helps you steadily accumulate a substantial corpus, regardless of market conditions, even if you’re starting with a small sum.
In this blog, you’ll explore the 7 key benefits of investing in SIP and learn how SIPs can help you achieve your long-term financial goals.
Benefits of Investing In SIP
Investing through SIP offers a host of advantages that help grow your money over time, while making the process easy and accessible. Here are some key benefits.
1. Beat Market Timing Challenges with Rupee Cost Averaging
Market fluctuations can be unpredictable, but SIPs help you invest steadily through rupee cost averaging. This means you’ll invest a fixed amount every month, regardless of the market’s ups and downs.
When the market is low, you buy more units; when it’s high, you buy fewer. Over time, this strategy averages out the cost of your investment, so you’re not impacted by market volatility.
Let’s consider a hypothetical example:
Suppose you invest ₹5,000 every month in a mutual fund, and the Net Asset Value (NAV) of the fund fluctuates based on market conditions. Here’s how your SIP works:
(The Net Asset Value (NAV) of a mutual fund represents the per-unit value of the fund’s holdings at a given point in time)
| Month | SIP Amount | Nav (Net Asset Value) | Units Purchased |
| 1 | 5000 | 100 | 50 |
| 2 | 5000 | 90 | 55.56 |
| 3 | 5000 | 110 | 45.45 |
| 4 | 5000 | 95 | 52.63 |
| 5 | 5000 | 120 | 41.65 |
| Total | 25,000 | Average NAV = 103 | 245.29 |
At the end of five months, your total investment is ₹25,000, and you’ve accumulated 245.29 units. Despite the market’s ups and downs, you’ve averaged a NAV of ₹103 per unit, which helps you reduce the impact of market highs and lows.
2. Make Your Money Work Harder with Compounding
The magic of SIPs lies in the power of compounding. Reinvesting your returns means your money works harder for you.
For example, if you invest ₹10,000 per month with an average return of 12% per year, your ₹10,000 will earn interest, and that interest will also earn interest.
Over the long term, your initial investment can grow significantly, with compounding accelerating its growth.
See how your ₹10,000 monthly investment can grow with compounding over different periods.
| No of Years | SIP amount | Expected annual return | Invested Amount | Total Returns |
| 10 | 10000 | 12% | 12 Lakhs | ₹23.2 Lakhs |
| 20 | 10000 | 12% | 24 Lakhs | ₹99.91 Lacks |
| 30 | 10000 | 12% | 36 Lakhs | ₹3.53 Crores |
| 40 | 10000 | 12% | 48 Lakhs | ₹11.88 Crores |
Disclaimer: Mutual fund investments are subject to market risks. Past performance is not indicative of future results. Please read the scheme information and other related documents carefully before investing.
As you can see, the invested amount stays consistent, but the returns grow exponentially over time.
In 40 years, your ₹48 lakhs investment could potentially become ₹11.88 crores—almost 25 times your total investment
3. There is No Minimum Investment Amount
One of the best features of SIPs is that you can start with as little as ₹100 per month. This makes SIPs an affordable option for anyone, regardless of their income level
Whether you’re a student saving for a trip or higher education, a working professional planning for a vacation, or someone saving for a big purchase, SIPs provide an easy and accessible way to begin investing.
4. Consistent and Effortless Investing through Automatic Deductions
SIPs allow automatic deductions from your bank account, ensuring that you invest regularly without needing to time the market.
This automation fosters disciplined saving, ensuring you stay on track with your investment goals even during market fluctuations.
Once set up, the process becomes completely hands-off, ensuring consistent investments without the need for constant monitoring or adjustments.
5. Helps You Fight Inflation and Save Long-Term
SIPs encourage long-term savings, which can help you beat inflation and achieve your financial goals over time.
For example, the average annual inflation rate in India has been around 6% in recent years.
Investing in SIPs, especially in equity funds, allows your investments to outpace inflation. For instance, the Nifty 50 benchmark index has delivered an average annual return of over 15% for the past 20 years.
Suppose you invest for the long term and inflation rises by 6% annually with your SIP generating an expected return of 15%. In that case, your returns will exceed inflation by 9%, effectively preserving and growing your purchasing power.
6. Better Returns Than Traditional Investments
Mutual fund investments often deliver higher returns compared to traditional savings options like Fixed Deposits (FDs), which typically offer returns between 3-10% annually.
Over the past 20 years, the Nifty 50 benchmark index has averaged more than 15% in annual returns, with some funds delivering an impressive 30%+ average annual return over the last five years
While FDs are safer and offer fixed returns, and SIPs in mutual funds carry more risk, history shows that over the long term, the risk of losses diminishes, and the potential for higher returns grows.
Even in the past year, low-risk debt mutual funds have outperformed FD rates (typically around 8%).
According to the Economic Times, around 116 debt funds have delivered higher returns than FDs, with some offering between 10-17% return (in 2023).
Check this table to see how mutual funds and FDs might perform over a 5-year timeframe.
| Asset Class | Invested Amount | Expected Average Annual Return | Investment Timeframe | Total Invested Amount | Total Return |
| FD | ₹6 Lakhs (one time) | 8% | 5 years | ₹6 Lakhs | ₹8,91,568 |
| Debt Mutual Fund Lumpsum | ₹6 Lakhs (one time) | 10% | 5 years | ₹6 Lakhs | ₹9,66,303 |
| Debt Mutual Fund SIP | ₹10000/month | 10% | 5 years | ₹6 Lakhs | ₹7,80,823 |
| Equity Mutual Fund Lumpsum | ₹6 Lakhs (one time) | 15% | 5 years | ₹6 Lakhs | ₹12,06,814 |
| Equity Mutual Fund SIP | ₹10000/month | 15% | 5 years | ₹6 Lakhs | ₹8,96,816 |
It’s clear that both debt and equity lumpsum investments outperform FDs. But what’s even more exciting is that equity mutual fund SIPs also beat FDs!
Over 5 years, an equity SIP of ₹10,000 per month has the potential to deliver better returns than a one-time ₹6 lakh FD investment!
7. Access Professional Management and Diversification
Mutual funds are managed by skilled fund managers who apply their expertise and research to make well-informed investment decisions.
While this doesn’t completely eliminate risk, it significantly reduces it by leveraging their experience and understanding of the market.
Additionally, mutual funds invest in a wide range of securities (depending on the fund categories), spreading the investment across different assets.
This approach helps minimize the impact of any one security’s underperformance, lowering the overall risk for investors.
Start Investing in SIPs with Expert Guidance
Systematic Investment Plans (SIPs) offer a disciplined and consistent approach to investing.
However, selecting the right mutual funds to match your risk profile, financial goals, and investment horizon can feel overwhelming without proper guidance.
Making uninformed choices or neglecting to adjust your portfolio to market changes can impact your long-term financial success. That’s where a Mutual Fund Distributor (MFD) comes in.
These AMFI-certified professionals educate you about various funds, help you determine the optimal SIP amount and frequency, and guide you in choosing investments tailored to your goals.
With innovative platforms like Moolaah, finding the right MFD with the necessary qualifications and expertise has never been easier.
Moolaah connects you with a diverse pool of experienced MFDs, making it simple to choose the one that best aligns with your financial objectives.
Start your SIP investment journey with Moolaah today – Sign up now to enjoy the benefits of investing in SIP and expert guidance to reach your financial goals.
If you’re considering investing in SIPs, don’t miss our guide – How to Invest in SIP: A Consistent and Disciplined Way to Reach Your Financial Goals. It includes a step-by-step guide to help you start investing in SIPs with confidence.
