A Systematic Investment Plan (SIP) is a financial tool that allows an investor to invest regularly in mutual funds on a specified date. These plans are flexible, which helps build wealth over a period of time by reducing risks & dealing with market fluctuations.It involves investing small portions of the amount regularly, which makes it suitable for those pondering How to Save Money appropriately. It is a simple & hassle-free way to build wealth & stay disciplined with investments.
Features of SIP
Provided are the features of a Systematic Investment Plan (SIP):
- Rupee Cost Averaging
The Rupee cost averaging followed in SIP helps investors to mitigate the risk of market fluctuations. This means that during downtime, investors buy more units & vice versa to enjoy the benefitsof market fluctuations.
- Disciplined Investment
Regular contributions of money towards SIP build a disciplined approach, which further leads to regular savings, consistent investments, & wealth creation.
- Flexibility
This plan allows investors the flexibility to choose the amount to be invested, which makes this plan suitable for every income class with different financial standards.
- Professional Fund Management
Under this plan, the professional fund managers help in decision-making depending on the investor’s financial objectives & market fluctuations.
- Long-Term Wealth Creation
SIP allows investors to plan investments to achieve long-term wealth creation with consistency, discipline & compounding power.
- Suspending Investment Options
At times of financial uncertainties, SIPs allow investors to pause their investments, i.e. suspend them for the time being, which will resume automatically after the pause tenure is completed.
- Unrestricted Investment Ceilings
It allows you to invest any amount starting from as low as INR 100 with no upper limit.
What is the right time to invest in SIP?
One should keep some key considerations in mind to determine the right time to invest in SIP:
- In the case of long-term investment, Horizon
SIP works best when investments are left for a long tenure. A long-term investment helps deal with market fluctuations & provides the benefits of compounding as well.
- In the case of Averaging the cost of investment
As a fixed amount is invested on a regular basis, it allows an investor to be average the cost of investments, which is known as rupee cost averaging, reducing the effect of market volatility.
- If you can invest consistently
One should invest consistently, irrespective of market fluctuations, ensuring steady fund growth.
- If market conditions are volatile
Whenever the market is down, one should take advantage of the situation & start investing, as one can buy more units when its price is low, which will lead to increased returns when the market flourishes.
- If you have disposable income
One should invest in SIP if they have a steady income flow& excess funds, not affecting daily financial requirements.
- If you are focused on financial goals
Before investing, one has to have a clear mindset about their financial objectives.
Difference between a Lump Sum Investment & an SIP
Provided arethe differences between a lump sum investment & SIP:
| Basis of Difference | Lump Sum Investment | SIP |
| Investment Amount | Comparatively higher than SIPs |
|
| Frequency of Investment | Consider the present market situation while investing | Monthly, weekly or quarterly |
| Underst&ing of Market | Consider the present market situation while investing | Use rupee cost averaging to reduce the average cost, neglecting the market situation |
| Flexibility | Low | High |
| Investment Horizon | 5 to 7 years | 3 to 5 years |
How to Start a SIP in a Mutual Fund?
Provided are the steps to start with a SIP in Mutual funds:
Step 1:Identification of Financial Goals
Identify your financial objectives in terms of children’s education, children’s marriage, purchase of a house, retirement planning, etc. It will help identify the aptest mutual fund, amount & tenure. An Investment Return Calculator can be used to estimate the potential earnings before investing in SIP.
Step 2: Choose the appropriate Mutual Funds
Choose the most appropriate mutual funds that best suit your investment horizon, risk tolerance, & financial objectives. It will depend upon some factors such as underlying assets, fund manager reputation, historical performances, etc.
Step 3:Choose the SIP amount
Choose the amount to be invested every month in alignment with thefinancial objectives.
Step 4: Choose the tenure of investment
Choose the tenure of your investment in alignment with the financial objectives, i.e. short-term or long-term will depend on the financial requirements.
Step 5: Open a Mutual Fund account
Choose the fund provider company to open a mutual fund account, which involves filling out the form, providing documents, & fulfilling KYC documents.
Step 6: Automate your debits
Set up the auto-debit instruction to automatically make the contribution from your bank account to the fund provider company on a specified date.
Step 7: Track your SIPs
Monitor the SIP’s performance on a regular basis by reviewing the mutual fund statements, checking the performance of investments &customising accordingly.
Step 8: Be Patient & Persistent
Be consistent& committed towards your investments, & don’t be hasty when making decisions. Hence, be patient & persistent to achieve the financial goals.
Types of SIPs
Provided are the types of SIPs:
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Fixed SIP
An investor has to invest a fixed amount of money periodically.
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Flexible SIP
The amount keeps changing for every instalment.
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Perpetual SIP
Here, there is no end date for SIP.
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Trigger SIP
Set trigger points; the investment is made automatically when the market triggers that point.
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Top-Up SIP
The amount invested can be increased periodically.
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Step-Up SIP
The investment amount increases periodically.
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Value Averaging SIP
A variable amount is invested depending on the current market value.
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Multiple SIP
Invest in more than 1 scheme at the same time.
Conclusion
A systematic Investment Plan is an easy, simple, &disciplined way to make mutual fund investments, which will help build wealth. It is meant for those who want to create long-term wealth with the help of regular &disciplined investing. They let investors enjoy compounding benefits, letting them achieve long-term financial objectives.
