what is sip investment and how it works? - GkGujarat.in

what is sip investment and how it works? : Systematic Investment Plan (SIP) is the best option to invest in mutual funds. SIP helps in instilling financial discipline and building wealth for the future. With SIP, you can start small and gradually build up the structure in a systematic and planned manner.

what-is-sip-investment-and-how-it-works
SIP

Systematic Investment Plan – What is SIP?

A Systematic Investment Plan (SIP) is a way of investing offered by mutual funds in which one can invest a fixed amount in a mutual fund scheme at regular intervals – weekly/monthly/quarterly/half-yearly or once a year instead of lump sum. . The installment amount can be as low as Rs.500 per month and is similar to a recurring deposit. It is convenient as you can give standing instructions to your bank to debit the amount every month.

SIP is gaining popularity among Indian MF investors, as it helps in investing in a disciplined manner without worrying about market volatility and market timing. Systematic investment schemes offered by mutual funds are easily the best way to enter the world of investing for the long term. Investing for the long term is very important, which means you should start investing early to maximize the ultimate returns. So your mantra should be – start early, invest regularly to get the best out of your investment.

How does SIP work? – How do SIPs work?

SIP works on the following two principles-

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Average cost of Rs

SIP can help you avoid market volatility by eliminating the guessing game of the market. Regular investment ensures that the average purchase cost evens out over the long term.

When the market goes up, you get fewer units, and when the market goes down, you get more units. This reduces your risk and ensures that you get investments at a lower average cost per unit.

Compounding

Regularly saving small amounts over a long period of time can have a huge impact on your investment due to the compounding effect. The following examples show that:

‘A’ starts investing at the age of 40 for his 60th birthday.

A return of 7% and a monthly investment of Rs. 1000, his total unit at the end of 20 years is Rs. 5,28,000 is.

‘B’ starts investing at the age of 20 for his 60th birthday.

Assuming 7% return and an investment of Rs.1000 per month, his total unit at the end of 40 years would be Rs. 26,56,436 — about 5 times the units accumulated by A.

Regular investments spread over a longer period yield higher returns and profits.

Advantages of investing in SIP –

Ease of Selection:

With SIP, you can get Rs. One can start investing as little as 500 and watch it grow. SIP is not only easy and convenient to track, but also saves you more.

Average Rupee Cost:

A feature of SIP is rupee cost averaging, where you buy more units when the market is low and less when the market is high. This is due to the inherent feature of SIP, where on every market correction, you will buy more, reducing the cost of your investment and reaping more benefits.

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Flexibility:

SIP offers you tremendous flexibility. Long-term commitments like investments in instruments like public provident funds or unit linked insurance plans can be avoided with SIP. These are open-ended funds for withdrawals of your choice, meaning they do not have a fixed tenure. You can either withdraw your investment in whole or in part, without incurring any losses.

Advantages of investing in SIP –

Ease of Selection:

With SIP, you can get Rs. One can start investing as little as 500 and watch it grow. SIP is not only easy and convenient to track, but also saves you more.

But they do not completely eliminate the risk. In a falling market, your mutual fund investment will fall. However, investing through SIP will reduce your losses as compared to consolidated investments. Similarly, SIP does not guarantee returns over the long term.

Average Rupee Cost:

A feature of SIP is rupee cost averaging, where you buy more units when the market is low and less when the market is high. This is due to the inherent feature of SIP, where on every market correction, you will buy more, reducing the cost of your investment and reaping more benefits.

Flexibility:

SIP offers you tremendous flexibility. Long-term commitments like investments in instruments like public provident funds or unit linked insurance plans can be avoided with SIP. These are open-ended funds for withdrawals of your choice, meaning they do not have a fixed tenure. You can either withdraw your investment in whole or in part, without incurring any losses.