A majority of people are unable to fulfil their financial dreams and goals. This is not always due to their low income level but mostly it happens due to the unawareness of the instruments which can help them in achieving their goals.
Mutual funds are such an instrument by which we can not only achieve our financial goals but also grow our money faster than the inflation rate. There are several ways to invest in mutual funds but SIP is one of the most effective way.
SIP means Systematic Investment Plan. If you want to invest in mutual funds and you choose this option to invest, you’ll get these benefits:
I.Periodic investment-You have to decide an amount to invest every month through SIP. One can decide any amount but at least 10% of your income will be the right amount to use for investment. It helps you to build a corpus gradually whether to achieve your goal or to invest again.
II.Averaging-This is another benefit from SIP. If you invest all the amount at once, you can’t get the benefits of averaging which helps you to maximize your profit even in odd conditions.
Let me explain this through an example: Suppose you invested $10000 in a mutual fund through SIP at the price $10 per unit. After investment the unit price falls to $5 per unit. If you again invest $10000 at this price. Your average price will be $7.5. Again, your average price will decrease as you continue to invest more at a regular interval at lower prices. This process is called averaging.
I think it’s clear to you that the concept of averaging helps us to decrease our loss and grow our profit.