Investing your money wisely is essential for building wealth over time. One popular method for doing this is through a Systematic Investment Plan (SIP). Let's dive into what is systemetic investment plan (SIP), how it works, and why it might be a good choice for you.
What is Systematic Investment Plan (SIP)?
SIP stands for Systematic Investment Plan and is a method of investing in mutual funds whereby one invests a small amount at regular intervals in the chosen mutual fund. While SIP investment lets you invest a fixed amount of money a certain time, it is more flexible than a lump-sum investment where you come with a large sum of money.
The method is sought by those investors, who wish to earn gradual increase of the capital in the stock without having to decide upon a right time for buying or selling.
Checkout: What is SIP in Hindi?
How SIP Works?
Select a Mutual Fund Scheme:
To invest in mutual fund, one has to choose the most appropriate mutual fund that suits his/her financial objective, tolerance to risk as well as the investment plan to be adopted. Before making your decision, go through a fund’s performance history and its management team that oversees its operations.
Decide the Investment Frequency:
Decide at what interval you wish to invest. Monthly is the most frequent option but you can set the frequency on a weekly, quarterly or once a year basis.
Set Up the SIP:
To avail SIP investment, you need to register through the mutual fund's website or apps like Asset Pluss. If you haven't done KYC (Know Your Customer), you need to do it. To facilitate automatic debit, provide the required details about your bank.
Automatic Debits and Unit Allotment:
If you have specified the date in the middle of the month, the fund investment will be made on the specified date with the predetermined amount being debited from your bank account.
You will be buying the units of the mutual fund at the Net Asset Value (NAV) price of that date. However from the market which the units belong to, the ability to increase the units owned over a period of time will happen.
Checkout: Top 10 Best Mutual Funds for SIP to Invest in 2024
Benefits of SIP Investment
Rupee Cost Averaging:
Dividing the desired amount to invest into fixed periods of time reduces the effects of market fluctuations. To get even more simplified, the idea is that when the market is low, you are making more units and when the market is high, you are making fewer units.
This strategy is known as ‘rupee cost averaging’, each unit costs less if averaged out over the long-term period.
Compounding Returns:
Automatic value creation – SIP works on the principle of compounding. The income that you receive is re-invested back into your investments, making your portfolio expand at an impressive rate with time. The peak effect from exercise is achieved beginning early.
Disciplined Investing:
SIP investment help in developing a disciplined approach to investment as your investments are being made automatically. This systematic investing pattern helps an investor not to make frequent investment decisions while they aim towards their predestined financial goals.
Flexible and Convenient:
Systematic Investment Plan in mutual fund are flexible. amount invested can be increased or decreased or eliminated if need be which makes it easier to invest. They are also relatively easy to undertake as most of the procedure is carried out through the internet and without much physical and time consuming interaction.
Checkout: What is the Difference Between SIP and Lumpsum Investment?
Types of Systematic Investment Plan in Mutual Fund
Fixed SIP:
This is the typical SIP where the amount is invested at fixed intervals and for a fixed amount of sum.
Top-up SIP:
It gives you the opportunity to buy more units after every possible time. This is great if your income increases in the future, as most people’s income does when they’re established in their careers.
Flexible SIP:
Can be very flexible so that you can adjust the amount of investment depending on the changes in financial status or characteristics of the market.
Perpetual SIP:
This particular SIP investment goes on continuously so long as you do not wish to discontinue the investment services. It is not even restricted to a certain time frame in which the program must be completed.
Checkout: Top 5 Reasons Why You Should Start Investing Early
Things to Consider Before Starting an SIP Investment
Investment Goals:
Understand what you want to achieve, firmly establish your financial objectives. This will assist in deciding which mutual fund to invest in and the right amount since you know what you are investing for.
Time Horizon:
Ask yourself the question of how long you are going to be able to invest your cash. This also means that you can have a relatively longer time horizon in terms of investments in which you can afford to be more risky in relations to the probable aggressive returns.
Risk Appetite:
Assess your risk tolerance. Finally, select a mutual fund that aligns with your risks tolerance level to the market price changes.
Mutual Fund Category:
Choose any mutual fund category by your risk appetite or investment horizon. Equity funds, debt funds, and structures have various levels of risks and returns that are affiliated to it.
Trial Run:
To reach an informed decision, use an SIP calculator to get an idea of the probable returns. This serves to help you predict or forecast the investment plan depending on how it is likely to perform in the future.
Related Calculators:
SIP calculator | Lumpsum Calculator | Step up SIP Calculator | SBI SIP Calculator
Conclusion
A Systematic Investment Plan in mutual fund is a very good way of investing as it has the principle of Rupee Cost Averaging, Compounding of amount / Income, and Regular Investments. It can also help to save money and invest gradually and steadily, and you assuredly become financially secured. Remember to choose the right mutual fund, set realistic goals, and stay committed to your investment plan for the best results.
By understanding and leveraging SIPs, you can make your money work for you in a systematic and efficient manner. Start your SIP today with Kartikey Traders and take the first step towards a secure financial future!
What is Systematic Investment Plan in Mutual Funds and How SIP Works?