Mutual fund investments are carried out by people with one particular intention. The said aim is to accumulate wealth over time. People want to accumulate wealth over time so that they could take care of day-to-day expenditures in the future after retirement. That’s because after retiring, you are saying goodbye to the monthly income that you earn through your full-time employment. So, an investment in mutual funds may help you to accumulate the wealth you want for living your life independently after retiring. In a mutual fund scheme, an AMC collects money from not just you but from other investors and deposits it in a fund. Once enough money is pooled into the fund, it is used to purchase different financial securities. Thanks to the several benefits associated with these schemes, they are considered an ideal investment option.
To sign up for a mutual fund scheme, you will come across two options. Namely, lump-sum investments and systematic investment plans or SIPs. While lump-sum investments might look attractive because they are one-time investments. But it might stressful if you don’t have the required investment amount at your disposal. This makes lump-sum investments very rigid. SIP, on the other hand, is different.
As stated above systematic investment plans are different from lump-sum investments in terms of nature. Through these plans, unlike lump-sum payments, you can pay for the mutual fund investment every month. To pay for the mutual fund scheme, you can request your bank to activate the feature of automatic deduction. This means that through this feature, on a specified date of every month, a specific sum from your account is deducted for paying for the mutual fund scheme. The feature of automatic deduction ensures that even if you were to forget the date of payment, your investment is carried out smoothly. But the question remains, why sign up for these plans? Here are some of the reasons:
- These plans are simpler than lump-sum investments:
One of the biggest disadvantages of lump-sum payments for mutual fund investments is that they can be a stressful investment mode. If you don’t have access to the required investment amount, you will need to hassle for arranging for the required investment amount. Systematic investment plans are different. Since they allow monthly payments, these plans are simpler than lump-sum.
- These plans are more affordable:
Apart from being simpler, these plans are also affordable. With SIPs you can begin your investment journey at a very low investment amount. And, as time passes and your financial situation improves, you can change your required amount of investment.
- No charges are levied for starting a SIP:
While signing up for a systematic investment plan, AMC will not charge you for starting a systematic investment plan. The cost of using this mode of investment is nil while the financial benefits associated with its use are high.
- This mode inculcates investment discipline among mutual funds investors:
Another reason why SIPs are so widely used for mutual fund investments is the fact that this encourages mutual fund investors to allocate their funds to the scheme in a disciplined manner. Also, these plans are known for being highly flexible. Investments made through this mode of investment may be halted at any point. Also, you have the option of decreasing or increasing the amount being invested.
Do these plans offer monthly returns?
Another question that prospective investors have about SIPs is, do these plans offer monthly returns? The answer to the question is no. That’s because a systematic investment plan is firstly a mode of investment and not an investment scheme. It is a way of investing in a mutual fund scheme and not a mutual fund variant. Also, returns in mutual funds are linked to market performance.