Using a Sip or a structured investment plan to invest in mutual funds has become quite popular. Continue reading to learn why mutual funds are such a good way to invest.
What is a SIP (Systematic Investment Plan)?
SIP stands for Systematic Investment Plan and is a method of investing in mutual funds. A lump amount or one-time payment is another option for investing.
SIP is a monthly investment plan in which you invest a certain amount of money in a mutual fund of your choice. The money is automatically debited from your bank account because of the setup. Use our SIP calculator to figure out how much of a monthly SIP you’ll need to reach a specific financial goal.
A systematic investment plan, or SIP, allows you to put a little amount in your favourite mutual fund scheme on a regular basis. A fixed sum is withdrawn from your bank account every month when you activate a SIP, and it is invested in the mutual fund of your choice.
A SIP, unlike a lump sum investment, allows you to spread your money out over time. As a result, you don’t need a significant sum of money to get started investing in mutual funds using SIPs. You are compelled to set aside a sum at regular intervals when you invest through a SIP, which helps you develop a feeling of financial discipline in the long run.
What Is a SIP and How Does It Work?
When you make a SIP investment in a mutual fund scheme, you buy a particular number of fund units equal to the amount you put in. But, When you invest in a SIP, you don’t have to time the markets because you gain from both bullish and negative market trends.
As the markets are down, you buy more fund units, whereas when the markets are up, you buy less. Because all mutual fund NAVs are adjusted daily, the cost of buying may differ from one SIP instalment to the next. The cost of buying averages out over time and turns out to be on the low end. Rupee cost averaging is the term for this. When you invest a lump sum, this benefit is not available.
There are various advantages to investing in mutual funds through a systematic investment plan (SIP).
SIP’s benefits include:
1, A low-Cost Investment.
Most mutual fund schemes provide SIPs, which allow you to begin investing with as little as Rs. 500 each month. This is a far smaller investment than the most popular investing options.
This means that even persons in their twenties who have recently begun working can begin investing in order to achieve their long-term objectives.
2. You have the option to turn off the SIP. Stop the SIP plan at any time.
If you wish to cancel a SIP plan, there is no penalty. You can easily opt-out of the SIP plan if you want to cease it. This has a significant advantage over recurring deposits (RD), which normally impose a fee if you choose to cancel them. After terminating your regular SIP investment, you have the option of receiving a refund or continuing to invest in the mutual fund.
Furthermore, there is no requirement to make a SIP investment every month for a set period of time. You can take a break from the SIP for a few months or even discontinue the investment at any time.
So, if you have an emergency and don’t have enough money to invest, you can skip a few months of SIP payments.
3. You Can Avoid Making SIP Payments
If you don’t have enough money in your account for the SIP investment for a given month for some reason, you can still participate in the SIP the following month. There will be no fines or charges levied against you. In the case of RD, skipping payment will almost certainly result in a fine.
4. You Can Start a New SIP If You Have More Money.
You can always start a new SIP plan in the same mutual fund or a different mutual fund if you start earning more or if you are able to save more. That way, the excess cash will be put to good use in the future!
5. Your Savings Becomes More Disciplined.
The capacity of SIP to make you a disciplined investor is the second significant reason why it is the best. Most investors begin investing but do not continue to do so on a regular basis. To move closer to your financial goals, you’ll need to make regular investments.
SIPs are designed to add additional discipline to your financial journey by their very nature. You specify a sum that is automatically invested in the scheme of your choosing, removing the need for you to make periodic instalments
The inability to save money is a typical problem among many people. The truth is that the more money you have, the more money you have to spend. This is why you should put money aside first, then spend. You invest before you spend if you set your SIP investment date immediately after you receive your money!
6. You Can Invest Small Sums of Money.
SIP programmes allow you to begin investing in mutual funds with as little as $500 per month. Here are the finest mutual funds to start with a $500 SIP commitment. Even if you don’t have a lot of money, you may benefit from India’s growth by investing in mutual funds!
7. No Need to maintain market timings.
It’s nearly impossible to precisely time the markets on a regular basis. SIPs, on the other hand, do not need you to time the markets in any way.
You’ve probably heard that investing in an overvalued market is a bad idea. You don’t have to worry about timing your investment when you invest through a SIP plan. During periods of extreme market volatility, your monthly SIP purchases fewer mutual fund units. When the markets are down, a monthly SIP of the same amount buys you more units. As a result, you do not pay very high costs for each unit of a mutual fund in the long run. The process is known as rupee cost averaging.
Regardless of market conditions, you continue to invest a fixed amount each month. If the market is down, you’ll get more fund units; if the market is up, you’ll get less.
8. Reduces Mutual Fund Units’ Average Cost.
Continuing on from the previous point, SIPs can also help you save money by lowering the average cost of mutual fund units. The fund’s NAV is low when markets are falling and high when markets are rising.
When you spend a fixed amount over time through a SIP, the average cost of purchasing units tends to be lower in the long run than while you make a lump sum investment when the markets are high.
9. You Benefit From Compounding’s Effect.
If you choose the growth option when you start your SIP, the returns on your investment will be added back to your original contribution amount. This creates a compounding effect, which could result in high long-term returns.
Starting a SIP in any scheme of your choice and selecting the growth option might be lucrative if you have long-term financial goals.
Your monthly SIP investment yields a return when you invest using a SIP plan. Those profits are added to your original investment and re-invested! As a result, your monthly SIP and the profits you make are exposed to a compounding effect over time, ensuring exponential growth.
10. You Control Your Emotions.
It can be difficult for an investor to remain unaffected by market fluctuations. Because of the market’s volatility, people are more likely to make emotional financial decisions that do not always produce the desired results.
SIPs, on the other hand, safeguard investors from making such errors. All you have to do is invest a set amount every month, regardless of market volatility in the short term.
When it comes to investing, you should put your emotions at bay. The markets swing a lot in the short term. You could be tempted to make impetuous purchases or sales when you see such ups and downs. This is almost never a good idea. You should keep your money invested for a long time. SIP plans allow you to take a methodical approach to invest. You protect yourself from reacting to short-term volatility by investing in a SIP plan on a regular basis.
11. Change the SIP Amount to Fit Your Needs.
SIPs are extremely adaptable. There is no need to continue investing merely Rs. 1,000 if you start an Rs. 1,000 SIP in a mutual fund plan of your choice.
If your savings grow in the future, you can increase your SIP amount or start a new SIP in the same mutual fund scheme or another one of your choosing.
12. Previous Results.
Mutual fund investors who put money into them 15 years ago are now earning huge dividends. Take a look at a few samples.
Assume you started a SIP of $3,000 each month in HDFC Top 200 (for more information on this mutual fund, go here). You would have spent roughly 5.4 lakh over the course of 15 years. At the same time, your investment would be worth about 35 lakh rupees!
Take the same SIP amount and invest it in Franklin India Prima Plus (see more details of this mutual fund here). You would have spent a total of 5.4 lakh this time. In 15 years, your investment would be worth approximately 31 lakh!
13, Portfolio Tracking on the Internet.
Most of India’s biggest asset management companies now allow investors to manage their mutual fund investments online. When you sign up for a SIP, you’ll be given a user ID and password that you may use to log into your account at any time.
From the comfort of your own home, you may follow your SIP, move to a different scheme, cancel SIP, start a new SIP, and even redeem the units.
14. Complete Discretion.
In India, the mutual fund business has risen by leaps and bounds in recent years. AMFI and SEBI have adopted various strict procedures to protect the interests of investors, which must now be followed by every mutual fund scheme and AMC.
For investors who are just starting their investment adventure through SIPs, this has made the mutual fund sector open and safe.
15. Freedom and Happiness
You create a level of freedom and enjoyment that is unrivalled. When your finances are good and healthy, you are in a state of mental joy. You have complete control over your wants and needs in life, and you are completely free of mental tortures and pressure. When you have a large cushion to fall back on, nothing may be more reassuring. Sip is a Guru-mantra that has helped you to become more relaxed during your relaxing and rejuvenating days. There are no aches or pains. Take a sip and relax. Happiness has taken over you
SIPs, or systematic investment programmes, protect you from a variety of risks. Short-term dangers, short-term volatility, emotional and impulsive reactions, overspending, and so on are some of them. SIP plans are one of the safest and most convenient ways to invest in mutual funds in India’s equity markets. Here’s where you can learn more about SIP. It’s no wonder, then, that the number of people choosing to invest through SIP plans has risen dramatically.
ARE YOU READY TO START YOUR SIP?
Now that you have a better understanding of why SIPs can be a good investment option, it’s time to get started investing as soon as possible. Delaying your decision to begin investing will only make achieving your financial goals more difficult.
However, you should be aware of your investing profile, which includes your risk appetite, investment horizon, and financial ambitions, in order to choose mutual fund schemes that best meet your needs.
Disclaimer: The author’s views are his or her own. The facts and opinions in the article have been taken from various articles and political commentaries available in the online media and Eastside Writers does do not take any responsibility or obligation for them.
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