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What is SIP - 5 Advantages and 2 Disadvantages

sip advantages and disadvantages

Hello friends, in this post we are going to discuss about SIP, its advantages and most importantly which no one will say you, its disadvantages.

In this article you will get to know about SIP investments and what are the advantages and disadvantages of SIP. You must know it. Check it here.

So imagine what we used to do in 90's when we were kids. People had piggybanks but I personally had a small box where I used to put coins whenever I get money. 

There was a lot of emotions behind that and specially I used to fight whenever anyone touched my box. Imagine how our grand parents were saving money. 

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The -most common sources were 
  1. Fixed Deposits(FD)
  2. Recurring Deposits(RD)

If I will explain the true meaning of SIP then it will be similar to Recurring Deposits. 

SIP is modern era's RD. So what does SIP do? In SIP a professional invest money in capital markets on behalf of his/her clients. It's as simple as that. 

It's as simple as planting a small tree. It is as simple as taking care of your small baby. 

Advantages of SIP - 

Safe From Market Fluctuation

One of the most important and remarkable advantage of SIP is, it saves you from market fluctuations. 

Ups and downs are always happening in markets but if you are doing an SIP, that means you are systematically investing money in all ups and downs of market. 

So ultimately your buying costs will be averaged out. And it will only happen if you will remain invested for atleast 15-20 years.

Small Investments - 

In India SIP can be created with a minimum of ₹1000. And believe me that's very small account like our traditional investment RD. 

Most important thing is your ₹1000 is further invested in different company by diversifying your portfolio by your mutual fund manager. 

You can even start and SIP in ELSS category with ₹500. I suggest to students to start SIP in ELSS. Believe me its beneficial than all investment options.

Tax Exemption - 

This is a welcoming step by Indian Government that you get tax exemption if you invest in ELSS that is equity linked saving scheme. 

You can claim exemption under section 80C upto 100000 per annum.

Expertise of Experts - 

There is no need to pay lakhs of money to professionals. Because your 1000 is managed by industry professionals with vast experience. 

So you can assume at least your money are in safe hand from rest of the peoples who invest directly in stock market.

Portfolio Diversification- 

It is well said " Don't put all your eggs in one basket." We all know this but how many of us understand it? 

I have personally saw portfolio of peoples and I'm surprised that only 1 among 20 peoples has a portfolio of stocks. Rest have 4-5 stocks in their portfolio. 

But when you invest in SIP as I have already mentioned your money are invested in 50-100 stocks. So your risk will be significantly lower than rest of the crowd. 

Disadvantages of SIP:-

Timing of market- 

Though there are many benefits of SIP still it has some drawbacks. Firstly timing of market. 

This means assuming everything is constant, if you have started your SIP in bull market that is when market is trading in all time high then there is a chance that your return will be lower than those who have invested in bear markets.

Short Term - 

SIP is not ideal for short term. In my opinion if you are doing SIP then please keep in mind that you have to give it time. 

Make sure you continue a SIP for atleast 15-20 years. If you have time like if you are of age below 30 then continue your SIP for 25-30 years. 

Then only you will be benefited.

Some frequently asked questions related to SIP

Which type of SIP is best?

Ans - It depends upon you and your risk taking capacity. For youngsters it is advisable to invest in midcap and small cap SIP. 
If your age is somewhere between 40-50 then you should stick to largecap stocks.

My advise is index funds. I am big fan of Warren Buffett and i follow his one advice. "Invest in index funds. Over the long tun index funds perform better than others." 

Is Sip Good Or Bad?

Ans - Definitely SIP is good and all citizens of India should invest in SIP. You will get better returns.

Is Daily SIP Better than Monthly SIP?

Ans - In my opinion you should choose monthly SIP. 
It has its reason. When we choose daily SIP, we are not getting fluctuation benefits. So choose monthly SIP.

Is SIP Safe?

Ans - No! Sorry to break your heart, but SIP has its risk. If you invest in SIP then you are taking risk of stock market. 
You have to understand the risk carefully. It's not Fixed Deposit.

Can I Stop SIP Anytime?

Ans- Yes, you can stop SIP anytime but you can't withdraw the money. It depends upon the scheme. 

When you invest in any scheme you should know about the exit conditions. 

In some fund you can't withdraw till 15 days or 1 months or 6 months. In ELSS schemes you can't withdraw the money till 3 years.

Which SIP is best in India?

Ans - This is depending upon your risk profile. There are different types of mutual funds and schemes. 
It also depends upon your age of entry. So based upon that you can choose best SIP in India.

One of my favorite scheme is Axis Long Term Equity Fund. 
I can say this because I have invested in this. This is an ELSS scheme. 
That means your amount will be locked in for 3 years. So keep this in mind.

Which SIP is best for 5 years?

Ans - You should not invest in mutual funds for 5 years. You should be invested in your schemes for at least 15 years.
If you take my suggestion then you should remain invested for rest of your life. you will get a handsome amount of corpus.

Is it good to invest in SIP now?

Ans - Of course Yes. When you invest in mutual funds through SIP route, you are avoiding the market fluctuations. 

So there is no right time, there is no wrong time. People will say that you should invest when share market is at low. 

But believe me I have analyzed this. 

My observations were surprising. 

You should start SIP when you think you are ready to invest.

That's all for today. Thank you for your time.

Happy Investing.
Ashish Kumar

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