It’s a common misconception that you need a huge sum of money to start your investment journey or to accumulate wealth. By investing in mutual funds via a Systematic Investment Plan (SIP), you can begin building your wealth with as little as ₹100 per month. Plus, you can choose a fund based on your investment timeframe and risk appetite. These are only some of the reasons why SIP investment plans have gained popularity among millennials. Here's a more detailed look at why this generation loves SIPs.

Start as Small as You Like

The earlier you start, the more time you give your money to grow through your working years. You can even start with your first job, since you just have to put in ₹100 per month. As your income grows, you can increase the amount. You can also choose different payment timings, such as monthly, quarterly or annually. This disciplined investing doesn’t hurt your monthly budget, but it does build a good savings habit, which can build a secure financial future.

No Constant Monitoring

You don’t even need to have any experience or knowledge of investing or the financial markets. The funds are managed by experienced and skilled fund managers. Their main responsibility is to invest your funds in a way that brings you the best possible returns. So, you don’t need to keep checking the status of the fund or the market. The hard work is done by the fund manager.

Power of Compounding

The power of compounding is the process of earning interest on your interest income. This works best with the SIP route to mutual fund investment. Each year, you earn interest on the principal amount invested by you. This earning is added to your capital when the interest for the next year is calculated. So, each successive year, the interest you receive is on a large and larger amount of funds. As a result, the earned amount also increases.

For example, if you have invested ₹1,00,000 in a year and earned 10% interest i.e., ₹10,000. For the next year, your principal amount will be counted as ₹1,10,000 and the 10% interest will be paid on this amount. So, the same interest rate brings you more money. This will continue as long as you remain invested in the fund.

So, investing in a mutual fund via an SIP plan can be a good way to maximise your returns and reach your financial goals.

Rupee Cost Averaging

When you read about what is SIP, you will come across a term, rupee cost averaging. With mutual funds, your investment is used to buy units in the fund, just like buying shares of a company. The price of these units or NAV tends to fluctuate. So, when the NAV is higher, you buy lesser number of units and when the NAV declines, you can buy more units. Over the long term, these numbers average out, giving you the benefit of owning units at an average cost that is lower than you would have paid for most of the units. This directly impacts your returns.

For better returns and financial planning, SIPs offer a flexible and convenient way to start mutual fund investments.