How does an SIP work | Monthly SIPs automate investments, offering an easy way to diversify and reduce equity market risks. They leverage compounding, mitigate market fluctuations over time, and provide high liquidity, allowing partial withdrawals or closure of specific mutual fund schemes.

Disciplined investing: SIPs inculcate financial discipline. The fixed and recurring contributions force you to budget around your investment, helping you develop a habit of saving regularly.

Flexibility and convenience: SIPs offer flexibility and convenience, allowing investors to start with as little as ₹100 monthly and increase contributions over time. They also permit halting investments temporarily during financial challenges, making them adaptable to changing circumstances.

Power of compounding: Compounding helps SIPs grow by reinvesting returns, generating returns on returns. The longer you stay invested, the more significant compounding’s impact on your wealth.

Lower risk of market volatility: SIPs help navigate market volatility by spreading investments over time, reducing its impact. This approach eliminates the need to time the market, making it easier for investors to handle fluctuations effectively.

Tax benefits: SIPs in Equity Linked Savings Schemes (ELSS) can help save taxes under Section 80C of the Income Tax Act, 1961, allowing deductions of up to ₹1.5 lakh from taxable income annually.

Investment horizon: SIPs are most beneficial with a longer investment horizon. New investors should view SIPs as long-term investments and aim to stay invested for at least 5 to 7 years to maximize returns.

Risk tolerance: Before investing, assess your risk tolerance. SIPs range from high-risk equity funds with higher returns to lower-risk debt and hybrid funds, which are more stable but offer comparatively lower returns.

Fund performance: SIPs help reduce market risk, but picking the right mutual fund is crucial. Check the fund’s past performance, management team, and portfolio carefully before investing to make the most of your money.

Amount to invest: Begin with a small amount if you’re hesitant to commit a large sum. SIPs let you start with as little as ₹100-500 per month.