Before looking into advantages of systematic investment plan let’s see what it mean, When an investor decides to invest into stock market through mutual funds by regularly investing at predetermined interval which may be quarterly or monthly it is called systematic investment plan or SIP. In simple words it means that investor does not invest the whole amount with him or her at one go, rather it is invested in small portion at regular intervals. Given below are some of the advantages of investing in systematic investment plan or SIP –
1. Suppose an investor wants to invest $10000 then if he or she is investing through SIP, than he or she will not invest $10000 at one go rather it will be invested in equal intervals say 1 month that is for next 10 month he or she will invest $1000, therefore it has the advantage of averaging out the market fluctuations because stock market tend to fluctuate and if investor get into it at wrong time than it may lead to huge losses and that is why it is important to invest regularly small sums rather than investing huge sums at one go.
2. As systematic investment plan are managed by professional managers, investors can be assured of good returns if he or she has a long time frame.
3. It is cheaper to invest in systematic investment plan than mutual funds as they charge less fess than mutual funds.
4. A Systematic Investment Plan also has the benefit of compounding, particularly if one begins investing in SIP early in his or her life.