Best 6 SIP Pros and Cons: The Pros and Cons You Need to Know Before Investing

We often take investing for granted and think that it is a luxury for the rich, but this is a common misconception. In fact, we don’t need a huge amount of money to start our investment journey as now you can start investing with as little as Rs 500 per month. It works just like a recurring deposit (RD) does for you, where you invest a fixed amount for a fixed period until you achieve a certain financial objective.

What is SIP

SIP is an investment scheme in which small amounts can be invested. Mutual funds can be easily invested through this scheme. If someone’s monthly income is low, then they will be able to invest. In this scheme, you can invest for a term of 1 year annually or more than that, 2 years, 5 years, 10 years or more.

There are many platforms on the Internet to invest in SIP. There is no need to go anywhere for investment. Saving money is very important in the present time, it helps in emergency situations. You can open a free Demat account by clicking on the link given below so that you can easily invest in SIP.

Pros of SIP

There are many benefits of SIPs for investors.

1. Disciplined Investing: SIPs encourage regular and disciplined investing as investors commit to making fixed investments at regular intervals. This approach helps avoid emotional and impulsive investment decisions, helping individuals stay invested for the long term.
2. Flexibility: SIPs offer flexibility in terms of investment amount and duration. Investors can start with a small amount and gradually increase their investment as their financial situation improves. Additionally, SIPs can be started and stopped at the investor’s convenience, allowing them to adapt their investment strategy according to changing circumstances.
3. Rupee Cost Averaging: SIPs use the rupee cost averaging strategy, which allows investors to buy more units when prices are low and fewer units when prices are high. Over time, this can result in a lower average cost per unit, reducing the overall impact of market volatility.
4. Diversification: SIPs allow investors to diversify their investments across different asset classes and securities. By spreading investments across multiple instruments such as mutual funds, stocks or sovereign gold bonds, investors can reduce the risk associated with investing in a single security or asset class.
5. Power of Compounding: SIPs offer the benefit of compounding, as returns generated from investments are reinvested to generate additional returns. Over the long term, compounding can dramatically increase the growth potential of investments, leading to wealth creation.
6. Saves time: This is the easiest way for you as an investor to invest due to various reasons like lack of time to research individual stocks. This can save you a lot of time and meanwhile, you can focus on your core business or job.

Cons Of SIP

1. Market Risk: SIPs are exposed to market risks, and the value of investments may fluctuate depending on market conditions. If a downturn hits the market, the value of investments made through SIPs may decline, potentially resulting in temporary losses.
2. Limited Control: SIPs offer limited control over the timing and pricing of investments. Investors have to follow a pre-determined investment schedule, which may not suit their individual financial circumstances or market expectations.
3. Over dependence on Fund Manager: In case of mutual fund SIPs, investors rely on the expertise and decision making of the fund manager. If the performance of the fund manager declines or there is a change in the management team of the fund, it can impact the total returns generated from the SIP.
4. Expense Ratios: Expense ratio is the annual fee you pay to the asset management company (AMC) when investing in a mutual fund scheme. It is a percentage of the total value of the fund and includes costs such as administration, marketing, legal fees, etc. The maximum expense ratio for an equity scheme is 2.25% and for a debt scheme is 2%.
5. Exit Load and Lock-in Periods: Exit load refers to the fee that the mutual fund company charges when you redeem your mutual fund units before the end of a particular period, and the period between which you cannot redeem your units or else you have to pay the exit load is known as the lock-in period. Due to these restrictions, mutual fund investments become unattractive for sudden withdrawals. These charges reduce your returns significantly.
6. Possibility of Missing Gains: Market timing involves buying and selling investments at the best possible time based on how the market is performing. This strategy is usually recommended for experts who have an understanding of the markets. However, beginners who invest in systematic investment plans (SIPs) usually invest regularly at specified intervals, regardless of how the market is moving. This means that you do not get a chance to choose the right time to invest based on market trends. As a result, you may miss the right time to get rich.

Conclusion

In this article, we have tried to tell what is SIP and Pros of SIP and Cons of SIP. Hopefully, from this post you have got useful information regarding Best 6 SIP Pros and Cons. If you have any question regarding this post, then you can tell us by commenting in the comment box given below. Your feedback and suggestions are welcome as always. Thank you.