To invest in any option, you should give your money enough time so that it can take advantage of compounding. This is equally applicable for mutual funds as well. The most convenient way to invest in mutual funds is through Systematic Investment Plan (SIP).
SIP is a system of investing in mutual funds where investors invest their savings in a scheme in small amounts instead of investing all at once. A minimum or any amount can be fixed under that scheme for monthly investment. Due to the recent surge in the stock market, the SIP method of investing has gained popularity among Indian mutual fund investors.
SIP makes long term investing easy. Through this, an investor can invest a fixed amount in a scheme of mutual funds at regular intervals (monthly or quarterly) and follow this plan regardless of the market conditions. Doing SIP for a long time gives the special benefit of compounding. In simple words, compounding happens when the interest received on savings is added to the principal amount and then interest is calculated on the new amount. Due to which the principal amount keeps increasing every year and the return also increases.
A large corpus can be created by investing in mutual funds through SIP. Even by investing Rs 100 daily or Rs 3000 monthly, you can become a millionaire. However, to create a large corpus, you may have to invest for a long time. In SIP, investors get much higher interest rates than banks. Also, its formula of compounding interest increases the investment amount rapidly. This is the reason why mutual fund SIP has become a favorite option for most investors.
