The thing about Systematic Investment Plans is that any investor with any amount of money can start their investment through it owing to a simple fact that in this scheme it is the investment horizon that matters more than the amount invested. Even when SIPs are compared to other types of mutual funds, SIPsis best for investors with limited savings and low-risk tolerance.
The reasons why SIPs should be continued for long
The features of Sip are such that it really doesn’t matter how much money one is willing to invest through it what really matters in it for how long they are going to keep it invested. In simpler words, it is the time horizon of the investment and not investment amount that really matters in SIP investments.
The following highlights why exactly SIPs should be continued for long even when it is not a big amount:
- Evening out risks and volatility:In the investment market, change is constant and one cannot really predict its next move or direction of change successfully. No matter how much amount one is willing to invest the risk of losing it amidst a volatile market is always there. In such a situation, having an investment plan that stretches over a long time span proves to be really helpful. When investors continue their investment for a long time even when the market is stagnant or low, investors can ease out the riskby holding onto their investors for longer and continuing them until the volatility evens out.
- Timing the market: SIP investors know the value of focusing on regular investments; their regular investment habit and dedication towards it inculcate a sense of independence in them when it comes to timing the market. This helps them to invest freely in the market without constantly tracking every move and curve of the market. The long investment horizon helps SIP investors to build their confidence while making market investments.
- Meeting Financial Goals: The journey towards a financial goal cannot be covered in a day and it requires a disciplined and systematic approach towards investments in the market. This is the main reason whyinvestors should continue their investments through SIP and utilise their small saving to make regular investments towards meeting their goals. In SIP, even a small amount of investment gets accumulated over time and helps investors to meet their much desired financial goals.
- Compounding Power: The feature of compounding the interest on investments and reinvestments makes SIP an attractive option of investment even for those investors who have a very limited amount to invest. The philosophy of spending little to gain more works in favour of SIPs because of this feature.But this feature only works best when the investment through SIP is continued for a long time to actually be able to accumulate the earnings generated through investments.
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