One reason for SIPs that very few mention

Systematic Investment Plan (SIP) is growing in popularity every month. A good percentage of mutual fund inflows is through SIPs. The public discussion on SIP is so much that some new investors are led to believe that SIP is a product, rather a mechanism.

Along with this, there are strong arguments about why SIP is not suitable for investors.  Both sides mention a lot of factors, but I find one crucial factor missing in this discussion – and that concerns our behaviour.

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The most important benefit of a SIP is that it stops you from being your own enemy. That is it!

Let us assume that you have drawn up a good financial plan, and this calls for investing x rupees a month. If you implement this in a way that you have to make a specific action every month, there is a very good chance that you would not do it regularly. On the other hand, if you automate this by setting up a SIP,  you make a decision initially and then get out of the way. Every month your investment gets made and you make that much progress towards your goals.

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A SIP does not reduce your investment risk. It does not reduce market risk. However it eliminates the behaviour risk.

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