The demand for SIPs or Systematic Investment Plans has gone up in the last few years. Thanks to demonetization, many people discovered the charm of SIP and mutual funds. However, many investors, including those who have already made SIP investments in mutual funds, are often worried about SIPs.
Here’s a quick guide to SIPs and how you can use them to invest in equity mutual fund plans to create wealth over a long period to accomplish your long-term financial goals
What is a SIP?
A SIP or a Systematic Investment Plan provides an investor to invest a fixed amount periodically in a mutual fund scheme, typically an equity mutual fund plan.
Systematic Investment Plan generally known as SIP is primarily a mode of investment with mutual funds. It is a long-term investment plan usually with the tenure of 10 to 15 years, where one can invest their money regularly which can be monthly or quarterly. A SIP is an amount, which enables one to invest for a constant period at regular intervals, usually on a monthly basis.
Why should you SIP?
As we explained in the beginning, SIP refers to a systematic investment plan. A plan for investing systematically over a duration of time is what SIP means. You can be precise either by investing a fixed amount at a regular fixed interval. Or by investing some amount but at a fixed regularity of time. The regular or fixed frequency of time is important in SIP investments. You can do SIP in an instrument of your preference either for short-term or for a long-term.
- It allows financial discipline to your life.
- it assists you to invest regularly without wrestling with market mood, index level, etc. For example, if you are deemed to put a fixed amount every month in a mutual fund scheme, you demand to find time to do it. When you have the time, you might be concerned about market conditions and think of delaying your investments. Or you might be thinking of investing more if the mood is positive. SIP puts an end to all these conditions.
- SIPs give you flexibility – With SIPs, you can take your investment amount, the number of months you require to invest, the frequency of your investments and the time you’d like to invest on. You can even pause your SIP if needed, or cancel it (however, we wouldn’t advise this until you reach your goal).
What are the other advantages of SIPs?
Systematic Investment Plan (SIP) is a way to invest in mutual funds through which you invest a fixed sum regularly in a fund.
There are various benefits of SIP covering in this article we will discuss them.
No Timing the market
Investors are always in difficulty if it is the right time to invest or not. No one can foretell which way the market will move or if the market has reached its peak or low point. Investing through SIP resolves this difficulty as it is a periodic investment which happens across market cycles. SIP is not free from the market volatility and the fund value may go down, but it saves you from the worry of market movements.
Rupee Cost Averaging: As discussed above in SIP investment is done across market cycles. When the market is great you get fewer units and when it is low then you get more units and therefore your investment is averaged out. This helps the investor to not bother about market volatility and keep on investing while gaining wealth.
Achieve your Goals : SIP is a comprehensive tool through which you can reach your financial goals. Say, you need to buy a car in 5 years which costs Rs 7.5 lakhs. Accounting for 6% boom in 5 years it will cost approx. 10.04 lakhs.
When you have done your investments for your purposes at the start of your month through SIP, then you can use rest of the salary as you want, and you won’t have the offense of not utilizing or saving the money at the end of the month.
How much money do we need to start a SIP?
You can begin investing in a mutual fund plan via SIP with a minimum of Rs 500.
Can I customize my SIP?
Yes, you can. Though the most successful SIP is investing a fixed amount every month, investors can customize the way they put money via SIPs. Many fund houses enable investors to invest monthly, bi-monthly and fortnightly, according to their revenue.