Mutual Fund systematic investment plans (SIPs) can empower retail investors in numerous ways. These instruments democratise investment opportunities, ensuring even small investors can build a substantial portfolio over time. Capital appreciation, disciplined goal-based savings, risk management, affordability, and ease of investing are pivotal elements that empower retail investors through SIPs.
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1) Investing small amounts: SIPs provide an entry point to the world of investments for those who lack the necessary wealth to engage with other, more inaccessible, investment instruments. Offering affordability and wide-ranging plans, they suit the financial capabilities of many retail investors. Moreover, the flexibility of SIPs, which can be paused, increased, decreased or stopped at any point, increases investor autonomy, contributing to their empowerment.
“Unlike the other traditional investment options, SIPs allow you to start with an amount as little as Rs 500, depending on your fund choice. As a result, it is more accessible to all individuals who may not have a huge sum of money to invest in one go,” said Palka Arora Chopra, Director, Master Capital Services Ltd.
2) Setting clear financial goals: SIPs ensure consistent and disciplined savings towards financial goals. Retail investors build a substantial asset base without pressure by routinely investing a definite amount and working towards their financial goals step-by-step. Chopra says, “SIPs may be tailored for any financial goal, such as education, retirement, or even house ownership. Determining your financial objectives and risk appetite is vital to selecting appropriate SIPs to meet those goals.”
3) Portfolio diversification: SIPs enable you to customise the amount and frequency of your investments to your financial objectives. You can start with a small amount and progressively increase the investment amount.
4) Compounding benefits: Another influential factor is the power of compounding that SIPs provide. The longer the investment horizon, the larger the benefits reaped, as returns get reinvested to generate their returns. This encourages retail investors to plan long-term investments and understand the advantages of patience.
Chopra said, “SIP investments have significant compounding impacts. It occurs when the returns on your investments are invested again, and the reinvested returns provide higher returns. This compounding impact can dramatically increase the growth of your investment over time. The longer you stay invested, the bigger the compounding rewards may be.”
5) Rupee cost averaging benefit: Risk management is another key advantage of SIPs. By investing a fixed sum of money at regular intervals, investors can mitigate the high-risk nature of the stock market. Rupee cost averaging allows one to buy more units when the prices are low and fewer units when prices are high. This naturally balances out the risk and ensures relatively safe and secured returns.
6) Professional fund management: Retail investors benefit from the professional skills of experienced fund managers who administer mutual funds, a typical SIP tool for SIPs. This knowledge is used in the cautious selection and administration of investment portfolios.
7) Flexibility: SIPs enable you to customise the amount and frequency of your investments to your financial objectives. Furthermore, you may immediately modify or discontinue your SIPs in case of any eventuality. This versatility is one of the big pros of investing in SIPs, and you can customise your investing plan to your unique needs.
Further equipping retail investors, the digital age has made investing in SIPs easier. Online platforms provide a user-friendly investment process and immediate access to portfolio performance tracking.
