What are SIPs?
Thanks to demonetization, SIP Investment is gaining popularity like never before. However, some investors are still confused with SIP. Let us help you clear up this confusion once and for all. We’ll start with the basics.
SIP stands for Systematic Investment Plan and is one of the finest ways to invest in mutual funds. It is a scheduled investment plan in which investors can invest on a regular basis such as weekly, quarterly or monthly as per their convenience. You can talk to an expert and start by investing a small amount of Rs.500 to understand how SIP works. Later you can choose a better system and enjoy the benefits. Fascinatingly, a disciplined approach to not investing while helping protect your investment from inflation. You should know the SIP plans and info about apply for personal loan.
Primarily, it helps you to be financially disciplined and secondly, it allows you to invest without care about the ups and downs of the market. For example, if you choose to invest in a mutual fund every month, you’ll need to have some time in advance. Once you have time, you will most likely start analyzing market conditions and decide to invest accordingly or even delay your investment plans and wait for the market to improve. SIP helps end all your dilemmas. All you have to do is invest in a regular program and relax.
How does SIP work?
It works similarly like a mutual fund and helps your money grow over a period of time. It works on two main mechanisms: averaging the accrual fee and the rupee cost averaging.
Accrual
SIP follows the accrual method whereby the interest earned becomes part of your principal for further interest calculations. As your inventory grows, this method will allow your money to grow exponentially
Average Rupee Fee
This strategy is the main reason to make SIP more profitable. With SIP, you can invest a predetermined amount at regular intervals. Once you start investing regularly, regardless of market conditions, you can benefit from more units when the market is low and fewer units when the market is high. This will average the price.
How do I start SIP Investment?
Follow these four steps if you want to start SIP Investments
- Set achievable financial goals
- Determine the investment period
- Determine the investment amount
- Get advice from a financial advisor
You can then pay the money by post-dated check or choose Electronic Clearing Service (ECS) where you can instruct the bank to withdraw the money automatically. The amount you invest in a SIP is then financed in a mutual fund that aids grow your money. You can track your profile by signing into the company’s website.
How to choose a SIP package?
There are numerous mutual funds to choose from. However, pay attention to the following aspects while choosing a SIP package;
SIP duration matters from a returns, taxes, and risk perspective. Always review a mutual fund’s SIP performance for at least five years.
Make it your business to check the repute of SIP fund houses. This will help you understand how they have managed to survive market conditions without letting their investors know.
Choose a fund with an asset size of Rs 500 crore to be safe. Try to avoid SIP funds under this benchmark.
What are the Different Types of SIP Investment Plans?
There are four main types of SIP investment plans in the market.
Flexible
With a flexible SIP plan, you can increase or decrease the number of SIPs depending on your cash flow. You can reduce the amount in case of a liquidity crunch and even refrain from paying SIP installments until your financial situation improves. On the other hand, you can increase the number of SIPs if you get a big financial gain. The plan gives you the option to change your SIP investment seven days before the SIP date for the month.
Top-ups
Top-ups on SIP packages allow investors to increase the number of SIPs. This plan offers investors the gain of investing in the highest performing mutual funds in the market. Also, because it allows you to increase the number of SIPs, you can create a very large corpus.
Permanent SIP
Permanent SIP plans allow investors to finance in a mutual fund of their choice monthly for a specified period of time. Investors can leave the “End Date” field blank in the SIP mandate. This plan allows investors to cash out at closing and reach their financial goals.
SIP Trigger
SIP Trigger packages are suit for people who have deep understanding of financial markets and their volatility. You can start this plan by setting a specific event, index, NAV or date. However, it is advised to stay away from this plan as it encourages speculation.
What are the profits of a SIP investment plan?
Disciplined Approach
Most people trust that investing in stocks is the best way to get rich. However, that is not the case. Investing in stocks requires you to have solid market knowledge, technical analysis skills and time. It can also involve a lot of risks. SIP investing online allows you to periodically decide how much to invest and then worry less about it. It also doesn’t require a deep understanding of the market.
Convenient and Easy to Watch
You can finance in the best SIP plans by simply writing out the application form without taking extra time from your busy schedule. You can use the automatic debit option or send a check backwards and relax. To monitor the progress of your investment, you can check your bank’s periodic statements.
Compounding
Since SIPs offer compounded returns over the years, it helps amass a significant amount of wealth. All you have to do is invest small amounts regularly for a few years to reap the rewards.
Advantages of Rupee Cost Averaging
As discussed above, this is an effective strategy that eliminates the need to time the market. You can finance in SIP as soon as you start getting earnings to enjoy maximum benefits.
Start early
You can invest in SIP early. You can invest Rs. 1000 only per month until your retirement age is 60 years. This will help you create more wealth with a good return on investment. The longer you start investing in SIP, the more aware of the losses you may incur.
Emergency Fund
You can easily withdraw a SIP to act as an emergency fund during a medical crisis or job loss.
Read Also: What To Expect From A Business Analyst?
Conclusion:
SIP investing is the best way to invest with almost negligible risk. You can tailor your SIP investment plan and relax. However, since the SIP system is designed to install financial discipline, it is advisable to start a SIP for a certain period of time. think about it.
