SIP or Systematic investment plan has become popular choice when it comes to mutual fund investments. In this article we will discuss how SIP as an investment strategy is beneficial to every kind of investor.
There are various benefits of SIP investment, following reasons are some of the advantages of sip which will tell you why SIP is best.
Initially you can invest as little as Rs500 to kick start your investment and work towards your financial goals easily. Unlike other investment options this is affordable as you can start with such less minimum amount. This reason makes this great investment option for people in their early 20s with no proper source of income.
SIP is more of discipline as you are investing certain part of your income every month. To make this thing a habit SIPs are automated, and you can create wealth in long run. This facilitates investor to activate SIP investments and deduct from your bank account on a specific date.
As mentioned earlier SIP creates discipline and makes you dedicated investor helping in achieving financial goals. SIP can be beginning, and you can work your way up through SIP. Once you become a disciplined investor you can try other investment options for more wealth generation.
Initially you can start with a little amount and later increase your SIP amount as your savings or earnings increase. Similarly SIP also gives you flexibility to decrease the SIP amount in future.
Using SIP, you can invest any desired amount in various mutual funds according to your preferred term. You can choose from different schemes available like Equity based mutual funds, debt mutual funds, balanced funds, etc. Depending on your financial goals you can select between any of these schemes.
As an investor you are not under any obligation to make SIP every month or for a specific duration. As per your wish you can skip or stop your SIP investment. You can exercise this when you have inadequate funds, or any financial emergency occurs.
You don’t need to time the markets when you invest through SIPs. This is because you keep on investing regularly every month no matter what the market conditions are. You can buy more units if the market is down and vice versa.
As mentioned earlier depending on the market conditions one can get more units when the market moves down and fewer units when it goes up. So, over a period the overall costs of your investments average out when you are investing in the Mutual Funds through SIPs.
The profits or returns you gain in SIP are reinvested in the market. So, you earn returns on investments and returns on reinvestments as well. The more the term of investment the more corpus you can create due to power of compounding.
Diversification is one of the important benefits of SIP in mutual funds. You can diversify your portfolio and invest across various industries and asset classes. This diversification results in reducing your security-specific risks which in turn increases your chances of yielding more returns.
Considering above benefits of SIP investment are enough let us dive into understand the different types of SIPs.
It is also known as flex SIP or Flexi SIP; this lets the investor to adjust the SIP amount depending on the availability of funds as well as the market conditions. To adjust to the market conditions there is a formula using which the investor can invest more when the market is falling and vice versa. Also, if you are experiencing shortage in funds you can decrease the SIP amount accordingly.
In this type of SIP you can increase the SIP amount at fixed intervals. For example, you start SIP investment with Rs 5000 and decide to step up your SIP amount with Rs 1000 every month. So, after 6 months of your initial investment you will be investing Rs 6000 and after 12 months of the first investment you will be investing Rs 7000.
In this type you set a trigger for your SIP investment. For example, you can pre-decide that your SIP amount should be withdrawn from your bank account and used to buy units of the certain scheme only if the NAV of that scheme falls up to a specific level decided by you.
This is an important type of SIP which every investor must be aware of. All the other types of SIP come with a start and end date. Many investors mention the start date but generally forget to mention the end date. So, when a SIP with no end date exist it turns into perpetual SIP. The end date of a perpetual SIP is until 2099 by default. But you do get an option to stop the SIP by submitting a written application to the fund house.
If you now know why SIP is best let us move ahead and learn about ways to invest in SIP plans.
You can select between any type of mutual fund only if you have proper idea of your own investment objective. You need to have investment goals in place for future and then start investing in various schemes. Analyzing your financial objective will let you understand your risk appetite, and accordingly you can select between various funds.
Asses your profile and decide between SIP or lump sum investment. You can either make a lump sum investment or step up your SIP amount after a fixed time interval.
All the mutual fund investments mandate KYC documentation and a net banking account.
You need to remember following points when you invest in a SIP plan
To conclude SIP creates discipline with investments made at regular intervals. So, if you are a beginner you should definitely try your hands on SIP.
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