What is a Systematic Investment Plan (SIP)?
A Systematic Investment Plan (SIP) is a methodical approach to investing. The systematic investment plan (SIP) is an investment strategy that entails making regular investments of a set amount of money into one or more mutual funds on a monthly, quarterly, or even semi-annual basis. If you want to invest Rs 2,000 per month in a mutual fund using the SIP method, for instance, you should make it a priority to ensure that the money is contributed to the fund on a regular basis.
You may use the auto-debit function to move the money immediately from your bank account to the fund on the specified date. You won't have to worry about missing a monthly payment this way.
The goal of investing in mutual funds via SIP is to build wealth over time. It can help you instil the habit of saving and investing because it is a recurring investment process rather than a one-time investment.
SIP investments may also decrease your exposure to financial market volatility.
Types Of SIP
- Flexible SIP: Until now, you've learned that SIP stands for systematic investment in a mutual fund. But what if you can't afford to invest the same amount every month? In this case, you should consider investing via a flexible SIP. You may adjust your monthly investments based on your financial flow. In the event of a financial emergency, you may lower the SIP amount. And if you have a lot of cash flow, you can invest a lot more. This is a viable alternative for entrepreneurs who do not receive a regular monthly salary.
- Top-Up SIP: In a top-up SIP, you may adjust the amount of the SIP payment at predefined intervals by a pre-determined amount. For example, if you have been putting Rs 1,000 in an equity fund every month, you may use the top-up option to boost your contribution to Rs 1,500. This is a simple approach to topping up your objectives as your income grows over time.
- Perpetual SIP: Investors often choose to invest in a mutual fund for a certain length of time. This might be for six months, three years, five years, or even ten years. But what if you don't want to tie your SIP contribution to a specific date? When you choose the permanent option, this is conceivable. You may continue investing in the fund via SIP for as long as you like unless you give the AMC explicit instructions to stop. When you have amassed sufficient corpus to meet your financial objectives, you may redeem the sum.
Why Should You Invest in SIP, and What are the Benefits?
When investors opt to invest in mutual funds online via SIPs, they get various financial perks. Here are a few notable ones:
- Compounding Power: The process of gaining money on your main investment plus the income produced is known as compounding. For example, if you put Rs. 10,000 in a mutual fund (at a 10% annual interest rate), you would get Rs. 1,000 in interest at the end of the year. This is because you now earn interest not just on the Rs. 10,000 you invested, but also on the Rs. 1,000 you got as interest.
- Rupee Cost Averaging: You don't have to worry about market timing when you invest via SIP. When you invest in SIPs, you guarantee that you buy more fund units when the market is low and fewer units when the market is high; this is known as rupee cost averaging. It enables investors to make reasonably fair profits while avoiding market volatility.
- Excellent Financial Planning Tool: You may have a variety of life objectives that you aspire to attain. For example, you may set short-term objectives such as seeing all eight global wonders in a single trip. On the other hand, you may have longer-term financial aspirations, like purchasing a home or establishing your own company in ten years. When you invest consistently in several mutual funds, you might expect to reach all of your financial objectives at the appropriate period in your life.
- Simple Investing: Investing in mutual funds using SIPs may be simple. When you've decided on an investment amount, just ask your bank to debit your account. This directs the investment amount to the fund. They are also simple to manage since the AMC plainly and succinctly presents you with all of the required facts about your investment.
How To Invest In SIP?
If you're wondering how to get started using SIP, here are three easy steps:
- Choose a mutual fund to invest in: There are various mutual funds available on the market. Choose a fund depending on your investment objectives and risk tolerance. To begin your investing adventure, complete the KYC procedure and submit an application form to the AMC online or offline.
- Determine the investment period: After you've chosen a fund, you must determine how long you want to stay involved. Depending on your investment objectives, the length might vary from 6 months to 10 years.
- Make consistent investments: Choose a date on which you want to invest every month. Investing with SIPs is a simple and practical way to build long-term wealth. That's why it is important to stay invested for the entire investment duration.
The usage of a SIP calculator to determine one's needs for mutual fund investments is a reliable method that requires few pieces of data. Moreover, owing to the fact that SIP calculators are accessible online, using them is simple, allowing for quick calculations that give reliable data for investment planning.
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