SIP: Investing through SIP is a great option, but there is a lot of confusion about how much time interval one should invest in it.
SIP: The SIP method for investment is rapidly attracting investors. Through this, discipline not only remains regarding investment but also helps in reducing the risk associated with market volatility. Although investing through SIP is a great option, but there is a lot of confusion about how much time interval one should invest in it. every day, every fifteen days, every month, or annually; How much difference would be better to invest, it must be understood before investing money so that the returns can be maximized.
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Keep these things in mind while choosing the frequency of SIP
- If the investment is being made for a long time then there is not much difference in daily, weekly or monthly SIP. However, there may be a problem of monitoring in daily SIP. Monthly SIP can prove to be better for those who are getting salary for one day every month. Such people can choose SIP date around their salary date. Daily SIP can be better for such investors who are in some business or in some profession which has daily income.
- If the fund’s money is being invested in mid-cap and small-cap stocks, then daily SIP can be impacted. Usually small cap funds have higher volatility, so daily SIPs can have higher volatility than monthly SIPs. If the market is rising then the returns in daily SIP will increase. However, the return on investment in large cap funds through daily SIP will be almost constant i.e. non-volatile.
- The return received in daily SIP also depends on the capabilities of the fund management, so before choosing it, definitely consider the strategy of the mutual fund.
- If the fund is not volatile, then higher returns can be achieved through monthly SIP as compared to daily SIP.
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Better to invest in mutual funds through SIP than lump sum
One can invest in mutual funds in two ways – lump sum or at regular intervals i.e. SIP. Both these methods have their own merits, but the advantage of investing through SIP is that through this, the fund cost can be minimized while taking advantage of the market volatility. This means that on investing in lump sum, according to the NAV (Net Asset Value) at that time, the units of the fund are available and then returns are given according to the rise or fall in it. Conversely, in case of SIP, if the NAV falls, more units are available and on the rise, lower NAV can be obtained, thus ensuring a better return on the capital invested in the long run as per the average NAV.
(Input: ClearTax)
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