Riddhi was keen to start her Mutual Fund SIP investment but being a newbie she was worried about the SIP pros and cons. She was not sure about if SIP is good for long term or not. Since it was a new investment for her, and this was the reason she was thinking if, Is SIP safe for long term?

Last updated 29 Dec 2022.

What is Mutual Fund SIP?

Systematic investment Plan or SIP is a way to invest in mutual funds. Here, you invest a fixed amount at regular interval usually monthly (you may also choose weekly, monthly, quarterly, half-yearly, yearly or other mode also) for a fixed duration.

For example Riddhi start her monthly SIP of Rs 10000 for 15 years.

So here the amount is fixed – Rs 10000 and duration -15 years.

Mutual Fund SIP investment is a powerful tool to invest your money. If you are investing your money in SIP investment, you are the owner of your money and you can take any decision anytime as per your requirement.

 Pros of SIP investment

There are many advantages of SIP investment.

Let’s have a look at the benefits of SIP one by one.

• Low Investment amount – One can start mutual fund SIP with just Rs. 500 per month. Thus it is pocket friendly and easy to start with. But of course one can start with the higher amount too. Now suppose, you start investing with Rs 5000 per month. It is easier to pay the amount on monthly basis rather than paying 60000 at one go.
• Flexibility to choose payment frequency– One can choose his/her own payment frequency as weekly, monthly, quarterly, half-yearly, yearly or other mode also).
• High liquidity– Mutual Fund SIP are highly liquid in nature. This means one can withdraw money any time you require from your investment. There is no additional penalty to withdraw your money other than exit load if you withdraw before specified time. This is specified time is different for different funds. For instance, it is one year for most of the equity funds and three year for debt funds. So it is vital to know before investing.
• Power of compounding-SIP investment multiplies your money with the power of compounding.  Longer the time higher is the value of money.
• Inflation beating returns– SIP Investment gives you high returns as compared to other Investments like FD, post office schemes or any other insurance policy, condition is to stay invested for long term more than 5 years.
• Rupee cost Averaging– SIP investments offers rupee cost averaging. One invests on a fixed date and that is why one purchase mutual fund units in different market cycles at low or high price. Due to this one need not to time the market. Since you purchase at different times of market cycle. The purchase price is averaged out.
• Professional Management– The money is professionally managed. Theses professionals manage a huge corpus and therefore the management fee gets low for an individual investor.
• So, whether you are a aam aadmi ( Common man) aur Amir Aadmi( rich man) you get  Professional Management for your money.
• Diversification– You get the benefit of inbuilt diversification as each mutual fund scheme invest in more than 60 to 70 stocks of different sectors.This approach reduces market risk of a particular stock.
• Simple, convenient and easy to monitor– You do not have to take much time from schedule to make your investments. You can invest by filling an auto debit form or online debit instruction to the bank and AMC and your money get deducted each month.
• Achieve your life financial goals– You can fulfill all your life goals whether it is short term or long term with the help of SIP investment and become a crorepati.
• A very simple way to be wealthy with small investment – Yes you can become wealthy by starting a Mutual Fund SIP. With power of compounding,disciplined regular investment you can create great wealth.

 Cons Of SIP/ disadvantages Of SIP

Every coin has two sides. The rosy picture can turn ugly for a few. So,Let’s have a look at the flip side of the coin.

• No Fixed Return – Mutual Fund investment offer no fixed return as per its nature. Since Mutual fund invest the amount in stocks or debt securities, return is not guaranteed. One may get low return in short term.
• Investment management Cost- However small, one has to pay professional management , operational cost in the form of expense ratio of the fund.
• No control over type of investment – One cannot invest in their own choice stocks or debt securities.
• No immediate stop in SIP– One can not stop SIP instantly. It takes some time to start and stop SIP. Note: it usually takes a month time to stop SIP.
• Not Suitable for people with unpredicable income – SIP investment is not suitable for people who have unpredictable income source.
• Limited Options of SIP Dates– Not all AMC offer all dates of investment. One need to decide the date in advance. The usual available dates are 1st, 5th, 7th, 10th or 15th or 25th or 28th. Although date is not a big problem. But people whose cashflow do not match with the dates might feel the problem in such dates.

FAQs

Is SIP good/safe for Long Term?

SIPs ( Systematic Investment Plan) are usually good plans to invest for long term in nature. Let’s have a look of real life result of 1000 SIP in different funds.

Is SIP good investment?

SIP is one of the best investment avenue if done regularly over a long period of time. Periodic review and right asset allocation make it further rewarding. SIP also give inflation adjusted returns.

What can be SIP Return?

On an average if continued for long term, the expected return from a equity mutual fund can vary from 8%-15% or more.

Can I withdraw SIP anytime?

t historically if you had stayed invested for long term 5 year – 10 years, SIP has never given negative returns.

Conclusion:

SIP Investments offers high liquidity, convenience, disciplined investment (automatic deduction of money from your account), power of compounding and growth of money.

Talk to your financial advisor today and diversify your investments in SIP investment and start get set go.