Investing is advisable for sound financial health. It allows you to build wealth over time and meet your financial
goals, although investing alone is not enough. You also need to be strategic about the products you invest in, the
mode through which you invest in them, how long you invest in them, etc.
Sticking to the modes of investing, Systematic Investment Plan (SIP) is one of the most popular modes. The SIP option offers several benefits, from diversification to the power of compounding. While SIP investments in mutual funds are common, it's also possible to invest through SIP in the stock market. Read on to understand the meaning of SIP in the share market.
What is SIP in the stock market?
SIP in the stock market means investing a fixed amount of money regularly in stocks over time. It allows you to invest in the stock market without having to time it, as SIP investments apply the strategy of rupee cost averaging. The market volatility doesn’t matter much, as the cost of your investment is averaged out over the long term, thereby reducing the risk.
How SIP in the share market works is that you set a certain amount you want to invest regularly – daily, weekly, or monthly with your broker. It's essentially a purchase order. You can invest in the stock of more than one company, set a maximum buy price, and fix other details so that your portfolio gets built as per your financial goals and risk appetite.
Benefits of investing through SIP
• One of the primary benefits of investing through SIP is that it inculcates financial discipline. It's a regular commitment you must accommodate in your budget. Investing becomes a priority instead of merely a goal that you may get to at some point later.
• Secondly, SIPs allow your money to compound over time – the power of compounding helps build a significant amount of wealth if your investment horizon is long. The money you invest initially earns returns, which are reinvested to earn you further returns, and the cycle continues.
• Another benefit of investing through SIP in the stock market is that it helps reduce the risk of market uncertainties. You don't have to worry when the stock price is high or low and wait to buy accordingly. Irrespective of the market price, SIP investments will invest the same fixed amount.
Now that you understand certain advantages of investing through SIP in the stock market, it is also important to note that investing in stock market through SIP is the most beneficial for investors who know how the stock market works. It is because, unlike mutual funds, you are the one deciding which stocks you want to invest in and manage the risk while tracking the returns.
This can get tricky and time-consuming. After analyzing the company's financials, you will have to carefully pick stocks and stay up to date with market movements and trends.
Investing through SIP in mutual funds can be more convenient as mutual funds have fund managers who make strategic investment decisions. They build the fund portfolio as per the fund objectives and closely track the fund's performance with the benchmark index.
Hence, before you begin investing through SIP in the share market, consider your comfort level with navigating the stock market and the time you have. If not, then a better option may be investing in mutual funds. Whichever option you choose, investing through mutual funds or directly investing in stocks, the SIP mode of investing is a great way to access the stock market.
Mutual fund investments are subject to market risks, read all scheme related documents carefully.
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