Why are SIPs the best way to get exposure to mutual funds? An explanator

If you are a new investor considering investing in mutual funds, it is recommended that you consider systematic investment plans (SIPs). For the uninitiated, SIPs allow small investors to buy mutual funds units, usually every month, every quarter, or every two weeks, across different price points. The data released by the Association of Mutual Funds in India (AMFI) reveals that SIP contributions are growing month after month. In July, the total SIP contribution on mutual funds stood at £ 28,464 crore, which is 21.9 percent higher than one year ago, when it was £ 23,332. In this financial year itself, SIP contribution has grown about 7 percent since April when it was at £ 26,632 crore (see table below). Month SIP (£ Crore) 26.632 May 26.688 June 27.269 July 28.464 (Source: AMFI) Why do you have to invest in mutual funds via SIPs? These are some of the main reasons why you should choose to invest in mutual funds via SIPs: I. Rupee costs Average: In essence, SIPs enable investors to get exposure to funds at different price points. Rather than waiting for price correction, investors can stop their investment over a period of one year or longer. By doing so, they can make their price of acquisition on average. This is similar to the average cost of dollar, which is an effective strategy to earn the likelihood of returns. Ii. Financial discipline: By investing a small amount (say £ 1,000 each month), investors can attract the habit of investing. And this practice of investing regularly is better than separating with a lumpsum money. Iii. Flexibility: If you want to invest in a mutual fund scheme and are uncertain about which scheme to invest, you can invest in small amounts via SIPs and monitor the performance of the scheme before deciding to make a big investment at a later stage. Alternatively, you can also leave the scheme without having a great loss. Iv. Comfort: Investors can choose any frequency of SIP they desire. They can decide to invest every month or every term, or every two weeks. They can even decide on any date they prefer. It can be the 5th or 10th, or even the 1st of each month. Some investors, meanwhile, believe that one specific date may be better than the other, while it is far from true. ‘There are many studies done to see if investments should be made on a specific date of a month, but there is hardly a difference in the accumulated corpus. Therefore, one can choose a date to invest in a SIP. If you are afraid to be out of your salary before the SIP date is due, you can select any date in the first week of the month for investment and founder of the Vassos. Dhan Financial Services. Note: This story is for information purposes only. Please talk to a SEBI registered investment adviser before making any investment-related decision. Visit here for all updates for personal finance