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Why are SIPs an Ideal Choice for the First-time Investor?

Why are SIPs an Ideal Choice for the First-time Investor?

While we are raised to abide by the principle that investment is good, we are not always pointed in the right direction in terms of investments. This is why picking the right tool becomes particularly tricky for first-time investors  considering the many financial options there are in the market. However, for quite a while now, SIPs have firmly established their place as the ideal first-time investment of choice for new investors around the country.

So, what lies behind the success of SIP as a first-time investor’s ideal tool? How can you make the most of it? Here’s all you need to know.

What are SIPs?

To start with, let us review how SIPs are defined. SIP stands for Systematic Investment Plan is a type of facility whereby investors can make equal and regular payments in mutual funds and other schemes. Often mistaken for products, SIPs are essentially plans that encourage disciplined payments and investments over a long period of time instead of making large lump sum payments in one go. The investor can make his or her selection of SIPs and exercise control over factors such as the amount and frequency of the regular investments.

Why are SIPs Ideal for New Investors?

Apart from the ease and convenience they offer, here are the reasons why investing in mutual funds through SIPs is the perfect choice for first-time investors:

1. They Encourage Financial Discipline

Most first-time investors also tend to be first-time employees, earning their first salaries and developing some of their first essential financial habits. By investing in SIPs , these first-time investors can by default develop a disciplined financial habit that will serve them for years to come - saving. Over time, not only do these saving habits help first-time investors prepare for the future but also aid in building large corpuses for larger, more important goals.

Additional Read: Understanding the Power of Systematic Investment Plan

Mutual Fund SIPs

2. They Generate Wealth from Income

SIPs are also deemed an effective investment tool because you can invest a part of your income and make the most of the power of compounding. Compounding refers to the process of earning on the interest accumulated by reinvesting the interest earned along with the investment amount. For an investment made early on in your career, as is the case for most first-time investors, this can lead to an exponential growth over the years and help you generate substantial wealth.

3. They Help You Meet Financial Goals

SIPs do not come with a lock-in period. This means that whether you have short term goals such as purchasing a car, or long term goals such as saving for retirement, you can help save for either with the help of an SIP investment suited for the time requirements of your goals. Moreover, in order to suit your financial goals, you can invest as much as is convenient for you at a time, have multiple SIPs for the purpose, and even withdraw or stop the SIPs as desired.

4. Rupee Cost Averaging

For first-time investors, braving the fluctuations of the market can be a difficult task. When the market conditions get choppy, it can get tricky for new investors to gauge their next investment move. However, by investing in an SIP even first-time investors can benefit from the principle of Rupee Cost Averaging - the investment technique of regularly investing across market (upmarket as well as downmarket). This helps your investment stay protected from the volatility of the market even without your intervention.

5. They Serve as Emergency Funds

While SIPs serve as the ideal tool for financial discipline, they can also make for the perfect emergency funds for first-time investors. Over the course of time, as your regular investments grow, you can accumulate enough corpus in your SIPs to help you meet any unexpected expenses. Moreover, with the flexibility SIPs offer, you can withdraw your SIP amount partially or in full without experiencing a loss of return on your investment.

Additional Read: How and where to keep an Emergency Fund?

6. Help You Save Taxes

There are a variety of instruments in the market that can help you save taxes every year, but require you to settle for quite modest returns. An easy resolution to this dilemma can be achieved by investing in specific types of SIPs that are geared towards both tax saving as well as higher income generation. A common example of such SIPs are the Equity-Linked Savings Schemes, or ELSS. They come with short lock-in periods, offer considerable diversification and most importantly, are eligible for tax deductions of up to Rs 1.5 lakhs under Section 80C.


As beneficial as SIPs are, it is essential for investors to get started as early as possible to reap maximum rewards. Hence, for first-time investors, SIPs present an ideal investment opportunity with the potential to grow for years to come and help them generate wealth. In particular, for most investment beginners, an ideal option would be to opt for a reliable mutual fund SIP.

Tata Capital offers the opportunity to invest in several such mutual fund SIPs across large cap, mid cap, small cap according to your specific requirements. To make SIP investments even easier, you can try out Moneyfy app from Tata Capital that offers a convenient method of browsing and investing in a number of suitable mutual funds.

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