Systematic Investment Plan or SIP has been gaining popularity for quite some time now, and the main reason behind this is the increasing awareness among investors about its benefits. People who used to invest in RDs have started investing in SIP. Today, we are going to see what SIP is and why is it a better investment option than Recurring deposits.
What Is SIP?
Systematic Investment Plan is a way of investing in the mutual fund through which you can make fixed monthly investments over a period of time to achieve your future financial goals. It has given a new meaning to mutual fund investments, as now people are considering them more of a way of saving, rather than investing. SIP has provided discipline and regularity to the investment style of many investors, which would have been very difficult with the lump sum investments.
Why Is SIP Better than RD?
There are several factors that make SIP a better investment option than RD. Let's have a look at them.
- Liquidity-
This is one of the main reasons that makes SIP better than RD. In recurring deposits, you have to choose tenure of investment and the amount you invest is locked in for that tenure. If you want to withdraw that amount before the tenure than you have to pay high charges for premature withdrawal, but that is not the case with SIP, except for the ELSS schemes which have a lock-in period of 3 years and a minimal charge of 1% can be charged in some schemes if you redeem your investments before 365 days.
- Auto Deduction-
This is another main reason for the increasing popularity of SIP over RD. Where you have to visit the bank or post office to make your monthly investments in recurring deposits, you don't have to put such efforts in case of SIP, as the stated amount will be automatically deducted from your registered bank account on the stated date.
- Returns-
Where recurring deposits provide you with a fixed return on your investments there is no such thing with SIP. In a systematic investment plan, the returns depend on the type of scheme the person is investing in. Investing in equity schemes can provide you with average returns of 10%-15% while investing in debt schemes can provide you with average returns of 7%-9%.
- Easy to invest-
For investing in recurring deposits you have to go through a tiring process of visiting the post office or bank where you want to open the account, then you have to fill the form and then submit the documents after which your account will be opened. But that is not the case with SIP. You can easily start a systematic investment plan online by following a simple process. First, you have to visit MySIPonline, where first you have to signup for a new account by putting in the asked details. After the signup, you will be asked for an online KYC verification, which does not take more than 15 minutes. After which you are ready for investment. Now choose your favorite fund, make payment to the AMC, and start investing.
With the help of above information now, you have a basic idea as to what SIP is and why it is a better option than recurring deposits. Although before making a shift it is strongly recommended to consult your financial advisor. To start a Systematic Investment Plan, you can visit MySIPonline and can enjoy our hassle-free process
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