Advantages and Disadvantages Of Systematic Investment Plan (SIP)

For the service class investors who get a fixed amount of money monthly, finding a good investment plan is quite difficult especially when they are looking for good returns. The bank’s savings account or Recurring Deposit do not provide expected returns, and if you are looking to get better results by keeping aside a fixed amount every month then the SIP can be a great choice for you.

Systematic Investment plans or SIP is amongst the most popular investment schemes in India. And unlike the other investment schemes in India, the SIP provides the investor to invest a small amount of money to the mutual funds and earn higher returns than usual.Unlike the mutual funds where you directly invest your money to the bonds and stocks, the SIP invests a small amount of money at the regular intervals (monthly or quarterly). Thus, the SIPs are a better choice for those buyers who are not willing to invest a lump-sum amount of their hard-earned money at once to the mutual funds.

advantages and disadvantages of sip investment

Advantages of investing money in SIP

Apart from providing the investor invest a small amount every month, there are numerous other benefits of the investing money in SIP that make it one of the most popular and reliable way to invest your money. And if you were planning to invest your money in a good scheme then you should know the advantages of investing money in the SIPs. Here are a few benefits that you can avail while investing a small amount every month to SIP.

  • The best way of compounding money

The SIPs are considered as the best way to use the money in a compounded way. The investment company uses the compounded money to provide the investor get great returns. So, if you were planning to invest a small amount to the mutual funds, then you should look for investing in the SIP.

  • One of the most systematic and well-organized way to use the money

For those investors who are looking to invest money in a small amount and in regular interval, the SIPs are the best option to opt for. This not only helps the investors have less burden for investment but also makes the investment more manageable and organized than the other investments modes available in India.

  • Perfect for the long-term investment

Those investors who are looking for long-term goals, the SIPs can be the better choice than to invest directly in the mutual funds. So, if you have long-term goals and are looking to save money for some more specific goals than just to save money then try your hands on the Systematic Investment plans.

  • You won’t need to care for the market behavior and ups and downs

The worst thing about investing the money in the market is the numerous ups-and-downs and inconsistency of the stocks. And if you are new to the investment world, then it would be difficult for you to deal things perfectly. However, while dealing the SIPs, you won’t have to worry about all these, the investment company will take care of your funds, and will ensure that you get the best returns for your invested money.

These were a few of numerous benefits of investing money in SIP. So, if you were looking for a perfect long-term investment plan, then start early and get the best returns.

Disadvantages of investing money in SIP

Like any other market-related investment, investing money in the SIPs is not completely safe as they run under market risks. And as an investor, it is essential that you should be well aware of these disadvantages or limitations of the SIPs. Here are a few disadvantages of investing money in SIP that may bother you if you have a limited salary and have other liabilities too towards your family.

  • You’ll have to manage the spending

As the SIP needs you to maintain sufficient funds in the account, you may find it difficult to manage the money every month. So, if you have a limited amount of salary every month, then you would have to manage your spending in such a way that the sufficient money is available in the account at the prescribed time of SIP deduction.

  • Not for the short-term investors

Although the SIP provides a good ROI, the SIP is best for the long-term goals. You may not find it too beneficial if you are looking for the short-term goals and savings. So, make sure that you invest in SIP only if you have a broad perspective in mind and have at least 15-20 years of investment goal.

  • Lock-in period

Like the mutual funds, the SIP also has the lock-in period which is the minimum time of investment the investor must have to keep the money invested in the scheme. However, the lock-in period differs from fund to fund. And there are several funds that do not have any lock-in period. So, make sure that you examine all the offer-documents carefully.

  • Instead of relying on the promises of your agent, refer the documentation

Instead of relying on the things your agent is telling you about, refer to the funds’ documentation for the complete information about the hidden terms and conditions of the funds. This would be a more reliable way to know about the funds you are investing in.

So, these were the most important things that you must know if you are looking forward to invest your money to SIP. And now when you are well aware of the pros and possible cons of investing money in Systematic Investment Plans, you can also suggest it to your fellow workers who were looking for a better investment scheme to invest their money.

Just make sure that you are investing in SIP only if you are investing the money for a longer period. This will not only provide you with the best ROI but also will help you save some taxes and get other benefits that won’t be possible if you were using the traditional ways to earn healthy returns.

Also Read: Difference Between SIP and Mutual Funds (Complete Overview)

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