Everyone has their dreams and ambitions, and they work hard towards achieving them. But is working hard the only way to achieve them? Using a Systematic Investment Plan (SIP) to invest in the stock market might be a straight forward approach to help you reach your goals. Before knowing the answer to whether SIP in stocks is good? What are the benefits of SIP investment? you must know what is Stock SIP.
What is Stock SIP?
SIP is a type of investment that needs a monthly commitment to save and invest. It enables investors to purchase equities on a regular basis in a consistent, amount/quantity-based way. It is the most effective long-term online investing plan.
💸 How does Stock SIP work?
When you invest through an SIP, you invest a set amount of money over a set period. This amount entitles you to a specific number of stocks. If you do this, then over time, you will be ready to invest money at both highs and lows of the market. To put it another way, you don’t have to time the market to make your investments. Trying to time the market may be dangerous as you might end up investing at the wrong time. SIP investments eliminate the element of uncertainty. It allows you to capitalise on the market’s volatility by following a disciplined investing strategy.
Is it good to do SIP in stocks?
Here are 5 Benefits of SIP in stocks:
1. Reduces the risk of instability
To reduce risk, equity SIP uses the rupee cost averaging theory. It is a method in which you invest a certain amount at regular intervals. This means that when stock prices are low, you purchase more units, and when prices are high, you buy fewer units. It aids you in overcoming market fluctuations 💯.
2. Compounding Power
Compound interest is the 8th wonder of the world. He who understands it, earns it. He who doesn’t, pays it.Albert Einstein
Compounding happens when the returns on your assets begin to earn returns. In theory, this is a straight forward notion. However, the practical consequences are enormous. When you invest in SIPs regularly, your returns are reinvested. By reinvesting your initial contribution, SIPs allow you to save more money. SIPs also serve to average out the cost of the stock. The earlier you start, the better since you will be able to capitalise on the power of compounding 🤑.
3. Fairly low initial expense
SIPs allow you to invest in stocks with little capital. This might be a low-cost method to invest each month without breaking the bank. With the SIP step-up option, you may increase your monthly stock investment amount in response to an increase in your income.
4. The overall price in rupees
Rupee cost averaging safeguards all of your SIP investments. Averaging rupee costs assists in overcoming market volatility and variations. A SIP automatically distributes more units when stop prices fall, and fewer units when stock prices increase, thereby averaging your savings.
5. More disciplined investment and saving
Discipline is developed. SIPs are monthly investments that can be set up on a certain date. SIP payments are deducted automatically from your bank account. Because they are withdrawn even before you organise your monthly spending, this pushes you to be more diligent with your savings.
When you’ve finished your research and are ready to make an informed decision, you may invest in your selected stocks. You may do so with the assistance of an online Demat account. This is very useful because when you open Demat account online, you can join and examine your complete portfolio in one location. As your investment portfolio grows, you begin to invest more regularly.
Apart from SIP if you have still have a limited budget and wish to invest here is how to invest in stock market with limited capital.
📌 You can also read:
- Do SIPs Generate Higher Returns Only During Market Correction?
- SIP in Stocks – How it is Different from SIP in MF?
- How SIPs can make you Ultra Rich?
- Active Vs Passive Investing: What Should You Choose?
- Debunked: 10 Biggest Myths about Saving and Investing
Happy Investing 💰
Disclaimer: This blog is not to be construed as investment advice. Trading and investing in the securities market carries risk. Please do your own due diligence or consult a trained financial professional before investing.