Investment In SIP Good or Bad? – Compare SIP Benefits & Disadvantages

What is a Systematic Investment Plan (SIP)

Systematic Investment Plan or commonly known as SIP is nothing but a simple investment strategy where a you decides to invest any amount but on regular and consistent basis in a specific investing instrument whether in a stock market, bonds, mutual funds, etc.

Doing a SIP in a good investment option is surely a time taking process that will show it’s power in upcoming 10-20-30 years but it is a time tested method to build wealth starting from a small amount.

For example:

Let say you like a business name ABC and wanted to become their shareholder by buying their stocks.

Now instead of investing your all the savings in a one shot you decide to invest let’s say Rs. 1000 monthly. During this period there can be the times when your investment value skyrocket or fall down too but you didn’t stopped investing.

Ultimately, if that business kept on increasing year on year then ultimately your investment will also go up and when you look your investment after 10-30 years you will see that although you just invested 1000 month but your investment value crossed seven figures depending upon the time you stayed invested & turning you into a millionaire.

While, above is just an example most people do the SIP in the mutual funds.

Is SIP Investment Good or Bad

Before starting a SIP most people like you, have a common question, is SIP investment good or bad?

For better understanding let’s see why SIP is good?

Benefits of SIP Investment

1. Rupee Cost Averaging or Dollar Cost Averaging – The best part of a SIP is that no matter whether the financial market are increasing or falling you continue to invest regularly a fixed amount that saves your most of the time you will waste on being emotional regarding on buying or selling your investment.
2. Protection Against Wrong Investment Timing – No one can time the market, that means no one can tell you what can happen in next month or so in the market with 100% surety, hence, due to systematic investment plan you can’t go wrong at all as your investment keep ongoing whether it is a bullish or bearish market.
3. Flexibility – SIP gives you a special advantage under which you can stop your SIP anytime you want, can increase the amount you are investing via SIP in mutual fund, or can withdraw your funds too anytime you want.
4. Disciplined Investment Plan – Systematic Investment Plan (SIP) can also be called as disciplined investment plan because you are least bother what’s going on in the market and you keep investing in both good or bad times due to which in a long term you can expect a sure shot healthy return to build your wealth.
5. Small Start – The best part of SIP making it a good investment is that you can start your investing journey from a small amount like Rs. 200 or $2.5.

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Disadvantages of SIP Investment

1. Time Taking – Doing a SIP is time taking strategy to build your wealth because the investment keep going even when the market are very much expensive.
2. SIP Fees – If you are doing a SIP mutual fund or index fund, then you have to pay a fee called expense ratio that can vary anywhere between 0.1% to even 2% that may look very little amount but in the long term they can eat a hefty portion of your wealth.

For Whom SIP Investment is Good?

Nothing in this world is perfect or in the simple terms applicable to everyone. Hence, that is the same scenario with SIP too.

To know is SIP a good investment or bad depends upon whether you have a proper resources and planning required for doing a SIP.

That’s why let’s just understand for whom SIP investment is Good:-

1. Having A Job – If you have a job or if you are earning a regular income then SIP is the best way for you to invest because in a SIP you need to invest regularly hence, you must a regular income source to invest.
2. Long Term Horizon – The major issue why most people are broken because they don’t have a long term goal and SIP investment works on the principle compounding where your interest also compounds. Hence, if you have a minimum I say 8-10 years of time then only you should go for a SIP to see some substantial gains.
3. Low Income – If you are someone who just started earning and left with some amount every month that may look insignificant for you to invest but using a SIP you can start building your future wealth corpus with it.
4. No Time To Learn Investment – SIP investment in a mutual fund is a passive way to build your wealth without investing your time in learning finance. Once, you have chosen a best mutual fund to invest, you can stay relaxed and your SIP will do the difficult task for you.

Also Read, Is SIP Tax Free? Know Everything About Taxation on SIP

Lumpsum Investment

If you wanted to start investing you have got two ways to do the investment either you will start doing a SIP or go with lumpsum investment.

Lumpsum Investment is just opposite of SIP, that means unlike investing on regular and consistent basis, you investment your savings in one shot or in a irregular intervals.

There can be the times in a year when you have got a lot of free cash or savings that you wanted to invest whether in a fix deposit, mutual fund, or buying a stock, etc. all are just lumpsum investment.

Final Words

Systematic Investment Plan or SIP investment is both good or bad. It depends upon whether you are right fit for doing a SIP.

As mentioned above, if you are someone who have a regular income source & wanted a way to build your wealth corpus in long term without much interference then you can start a SIP in any mutual fund you like from today itself.

Do remember to generate you need to have either time or money & experience of investing and finance.

There is no shortcut – both the ways have its own pros and cons.

Disclaimer: The Honest American provides stock market news and strategies for informational purposes only and should not be construed as investment advice. Readers are encouraged to consult with a qualified financial advisor before making any investment decisions.

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