Online Share Trading

What is SIP investments?

What's SIP in mutual funds ?

An SIP systemic investment plan is a way to invest in mutual funds. It involves an investor choosing a mutual fund scheme, and then investing at regular intervals. SIP investing plans allow you to invest a smaller amount over time than a large amount at once, which could lead to higher returns.

What is a SIP?

We now know what SIP investment is. Here's how it works. After you sign up for a systematic investment plan, your bank account will automatically debit the amount and it will be reinvested in a mutual funds you buy at a predetermined time. Your mutual fund's net asset value will determine how many units you are allocated.

Any additional units that you invest in an SIP Plan in India will be added to your account at the current market rate. Each investment you make will result in a larger amount of reinvestment, plus any returns you receive on those investments. Investors decide whether to receive returns at the end or at periodic intervals. Let's look at an example to help us understand.

Let's say you are looking to invest in a mutual funds of your choosing. You decide to save Rs 1 lakhs for the investment. You have two options for making this investment. One time payments of Rs1 lakh can be made to the mutual fund you choose. This is also known as a lump-sum investment. You can also choose to invest via an SIP. These are the steps:

  • Start by setting your monthly SIP amount. Let's say you decide to invest Rs500 each month.
  • After this, Rs 5oo is automatically deducted from your account and credited to the mutual fund you wish to invest at a fixed date each month.
  • This will continue for as long as you choose for your systematic investment plan.

Types Of Systematic Investment Plans

Here are some examples of different types of systematic investment plans that you might consider:

Top Up SIP

This type of systematic investment plan allows you to increase your investment amount over time while still allowing you to have the flexibility to invest more if you have more income. This type of SIP helps you get the best out of your investments by investing in the highest performing funds at regular intervals.

Flexible SIP :

This type of systematic investment plan allows you to choose the amount that you wish to invest. Investors can increase or decrease the amount they want to invest based on their cash flow, needs or preferences.

Perpetual SIPH :

This type of SIP Plan allows you to continue your investments even after the mandate expires. A systematic investment plan generally has an expiration date after one, three, or five years of investment. Investor can withdraw any amount he has invested, regardless of whether he is able to use it to meet his financial goals.

SIP Investments

These are just a few of the many benefits that investing in an SIP is more advantageous than a lump-sum investment. These are just a few of the benefits.

This makes you a disciplined investor -

An SIP is a great investment option if you don't have the financial expertise to understand the market. To find the best time to invest, you don't have to spend time analysing market movements. An SIP automatically debits your linked bank account, and your money goes to your mutual funds. You can relax and enjoy the benefits of an SIP. An SIP, unlike lump sum investments, allows you to actively work towards increasing your investments' growth through periodicity.

Rupee cost averaging:

SIPs have one of the greatest advantages: rupee cost averaging. Because the amount that you invest is fixed for a longer period of time, rupee cost average allows you to make the most out of market volatility. Your SIP will average the unit's value based on the amount you have chosen to invest. You can buy more units when the market is low or opt for lower units when it's high. This will ultimately lower your unit cost.

Power Of Compounding:

Because your investments will grow continuously, SIPs are a disciplined way to invest. The automation of the whole process allows for your investments to grow over time, as opposed to lump sum investments where you might forget to invest over time. SIPs allow you to invest a small amount each day and grow it into a larger corpus. This is a combination of your contributions with compounded returns over time. SIPs offer a unique advantage over other investment options because they allow for compounding, without having to put a lump sum.

The Takeaway

If you're looking for something easy and affordable that doesn't require a lot of capital, SIPs are a great option. SIPs have the benefit of rupee cost average, which allows one to be more disciplined in investing, and can also allow one to reap the benefits of compounding. You should research all types of SIPs before you invest.

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