10 Reasons Why SIP Investments are the Best Way to Grow Your Wealth

Article summary: 

Systematic investment plan (SIP) makes investing accessible to everyone, regardless of their income level. As financial awareness is increasing, more people are turning to monthly SIPs. In this blog, we'll share ten compelling reasons why SIPs are the best investment strategy.

You're likely familiar with loan EMIs, those fixed monthly payments that chip away at your debt. Now, imagine flipping that concept on its head to actually build your wealth. That's precisely the opportunity that Systematic Investment Plans, or SIPs, present.

SIPs offer you a wealth of investment options. Whether you're interested in mutual funds, stocks, or even gold, the choice is yours. What's more, you have complete control over your investment size and frequency. You can start small, with as little as INR 500, and scale up as you go.

The growing appeal of SIPs is hard to ignore. Data from the Association of Mutual Funds in India (AMFI) reveals a 53% surge in SIP investments over the past five years. This uptick indicates that an increasing number of people are turning to SIPs as a reliable avenue for financial growth. And with features like one-time setup and autopay, it's never been simpler to invest. Once you set your plan in motion, your chosen investment amount is automatically deducted and invested each month.

Still on the fence? No worries. We've prepared a list of ten compelling reasons why SIPs should be your first choice for investment. 

10 reasons why SIP investments are your best investment plan

SIPs offer a financial strategy that's gentle on both your pocket and your peace of mind. Here are ten reasons why SIPs are perfect for accumulating wealth over the long term: 

• Low entry barrier

One of the best things about SIPs is that you don't need a large sum of money to start investing. You can begin with as little as INR 500 per month. This makes it accessible for almost everyone, including students and young professionals who might not have a lot of disposable income.

• Compounding effect

Warren Buffett put it well when he said, "My wealth has come from living in America, some lucky genes, and compound interest." In SIPs, compounding is your best friend. Every time you invest, both your initial amount and the interest it earns start to grow. It's like a snowball rolling down a hill, getting bigger as it goes. Let's say you invest INR 5,000 every month with an annual return of 12%. In 20 years, you could end up with close to INR 50 lakhs.  

• Rupee cost averaging

Rupee cost averaging is a smart strategy tied to the net asset value (NAV), the daily price of a fund unit. When you invest a fixed amount, like INR 1,000, the NAV determines how many units you get. A low NAV gets you more units, and a high NAV gets you fewer. This approach lowers your average investment cost over time.

For example, investing INR 1,000 monthly at varying NAVs could get you 50 units at INR 20, 40 units at INR 25, and 55.5 units at INR 18. Over three months, you'd accumulate 145.5 units for INR 3,000, averaging INR 20.62 per unit. If you'd bought only at the highest NAV, you'd have just 120 units. 

• Tax benefits

Tax benefits are another compelling reason to consider SIPs, especially those in equity-linked savings schemes (ELSS). ELSS investments qualify for tax deductions under Section 80C of the Indian Income Tax Act. This gives you a twofold advantage. First, your money grows over time as it would in any other investment. Second, you get to save on your income tax, which is like earning an instant return on your investment.

Suppose, you fall under the 30% tax bracket and decide to invest INR 1.5 lakhs in an ELSS, you could save up to INR 45,000 on your tax bill for that financial year. It's a win-win situation that makes ELSS SIPs an attractive option for both wealth creation and tax planning.

• Flexibility 

SIPs are flexible, you can choose the amount and frequency of your investment. Additionally, step-up SIPs allow you to increase your investment amount at regular intervals. This is great for young professionals who expect their income to rise over the years. You could start with INR 2,000 per month and increase it by 10% each year, aligning your investment with your growing income.

• Diversification

SIPs allow you to invest in a mix of asset classes, including equities, bonds, and even commodities like gold. This diversification helps to balance out the risks and offers a safety net during market volatility. By spreading your investments across various sectors, you're less likely to incur significant losses if one asset class underperforms.

• Liquidity

You should ideally stay invested for the long term to get the most out of your SIPs. However, most SIPs don't lock in your investments for a set period, unlike fixed deposits, which do have a lock-in period. So, if an emergency arises, you have the freedom to withdraw your money. This gives you a level of liquidity that you might not find in some other investment options.

• Professional management

When you invest in SIPs, experienced fund managers handle your money. They make informed decisions based on market research, ensuring that your investment is in good hands. You don't have to worry about tracking the market or making investment choices, the experts do it for you.

• Inflation-beating returns

SIPs often offer returns that outperform inflation, making them a good choice for long-term wealth creation. Unlike traditional savings accounts that offer minimal interest, SIPs can provide substantial returns, ensuring that your money's purchasing power doesn't diminish over time.

• Goal-oriented investment

Through SIPs, you can set financial goals and work towards them systematically. Whether it's buying a home, funding your child's education, or planning for retirement, SIPs offer a structured way to achieve these milestones.

You can accumulate significant wealth over time through steady and disciplined investing in SIPs. The sooner you start your SIP journey, the quicker you'll grow your wealth.

Wrapping up: Key points to remember 

• With SIPs, you can make regular, smaller investments instead of lump-sum investments.
• A SIP offers multiple advantages such as compounding, tax incentives, and diversification, making it a valuable tool for long-term wealth growth.
• Although SIPs are generally safer investments, you'll need patience and a commitment to invest for over 30 years to yield significant results.

Don't miss out on the opportunity to build wealth with SIPs. Open a mutual fund account today!