In March 2021, SIP or popularly referred to as systematic investment plan witnessed a net inflow of Rs 9,182 crores. This was 6.3% more than the previous period. Clearly SIP is one of the most preferred routes of investment among investors to invest in mutual funds and more and more investors are turning to SIP investments. But why is that? Owning to the certain benefits of SIP investments enjoyed by investors, the SIP mode of investment has garnered widespread popularity among retail investors. Some of the benefits of SIP investments include no need to time the markets, low minimum investment amount (an investor can invest as low as Rs 100 per month in SIP mutual fund), rupee cost averaging, power of compounding, inculcating the habit of disciplined investing, etc. The longer investors invest in SIP, the more they are likely to benefit from these investment tools. But why is that? In this article, we will try to answer this question. Let’s understand why investing in SIP needs to be a long-term affair.
Power of compounding
One of the biggest benefits of SIP investments is the power of compounding it offers to investors. Compounding permits individuals to gain higher yields on their investments, as the yields from the mutual fund investments are reinvested to earn further yields. Basically, your money works on their own to generate further more money for you. As the earnings from compounding is directly proportional to the duration of the investment, it is advised to start investing in mutual funds as soon as possible, so that you stay invested for a longer duration and enjoy the optimal benefits of power of compounding.
Average holding period
Did you know that even if you invest in mutual funds through SIP mode of investment for a duration of 10 years, the average holding period for your investments would be just 5 years? You must be thinking, how is that possible. Well, if you notice, though your first SIP investment would have finished a duration of 10 years, your last SIP instalment would have barely touched 1 month mark. Hence, even though you would have diligently invested in mutual funds through SIP for a period of 10 years, your average investment duration would be just 5 years. Thus, it is advised to invest for a longer duration in SIP investment to have a higher average holding period.
Remember, perseverance and patience are two key aspects that can drastically change your mutual fund investment game and help you create a significant amount of capital in the long run. Hence, investors are advised to be patient and invest in the markets for a prolonged duration to enjoy the maximum benefits from their SIP investments. Investors can also use an SIP calculator – an investment tool that allows individuals to understand the future value of their investments at the end of the tenure. SIP return calculators can also be used to understand the SIP investment amount required to invest to achieve a specific investment corpus. Happy investing!