A systematic investment plan (SIP) offers several benefits. It enables you to invest a small amount at regular intervals to grow your money. You may wonder when is the right time to start investing in an SIP.
Experts recommend commencing at any time without relying on the market levels. You must not delay your decision because the index is at a high or low. Here are three things to keep in mind to determine when you must start investing in an SIP.
- Investing at current market levels
Are you wondering whether it is advisable to invest in an SIP at current market levels? The answer is yes. In a fundamental sense, SIP investment in equity mutual funds must not depend on the stock market levels. However, you need to be sure that you do not require the money in the short term. Unlike other investments like unit-linked insurance plans (ULIPs), there is no minimum lock-in for an SIP. However, to maximize your returns and benefits, it is recommended to invest for a longer period of five to six years. Opting for an SIP to meet long-term financial goals is a wise decision.
- Market levels and SIP
If you want to earn profits through equity investing, it is best to buy at low levels and exit when the prices rise. However, it is very difficult to predict the market and price movements in the stock markets. This is why SIP investment is beneficial. When you invest through an SIP, the mechanism automatically purchases more units when the price is lower and vice versa. This offers you certain protection against market movements.
Therefore, if you think that the markets are at a low, you may use an SIP to buy more units. Even if there is a further decline in the market, you will benefit because you are able to accumulate more units. This allows you to earn better returns when the market moves in a favorable direction. However, again it is important to remember that you must not require the money in the short term.
- SIPs and investment returns
In most situations, disciplined investing through SIPs provide good returns. It is recommended you check the past performance of the various funds before you start your investment. However, investing for the long term is advantageous. This is because the volatility of short-term market movements is eliminated. Furthermore, you are able to average out the cost of your purchase. Finally, long-term investing offers the benefits of compounding where your returns earn further profits, thereby enabling you to accumulate greater wealth.
From the aforementioned points, it is seen that you must not rely on the market levels to start investing in an SIP. Moreover, staying invested for a longer period maximizes your returns. If you want to start investing, it is recommended you begin today.