Systematic Investment Plan popularly known as SIP has changed the way investors look at investing these days. This article will help you understand how investing in SIP is a smart way of financial planning to build a pool of future financial resources, especially when you consider equity as an asset class!
There was a time when investing in Mutual Funds was considered as a matter of high risk but with the introduction of SIP investing in Mutual Funds has revolutionized the concept. Investing in the equity market is considered “risky” because of the mar
SIP is a modern way of investing in stock markets and it has made Mutual Fund investments considerably less risky and highly profitable.
What is SIP?
As the name suggests SIP or a systematic investment plan is a smart way of investing in mutual funds allowing the investor to invest in the mutual funds at regular intervals. SIP is predominantly a planned way of investing that helps the investors to accomplish their goal of wealth creation.
How to invest in SIP?
For investing in SIP an investor can invest the money either on a quarterly, monthly or weekly basis as per their convenience and appetite. A fixed amount is debited from the investor’s account and is invested in Mutual Fund. The invested money is utilized to purchase certain units of the fund. The number of units depends on the current market price of the fund.
What are the advantages of investing in SIPs?
“Little drops of water make a mighty ocean” this popular saying perfectly describes Systematic Investment Planning. SIPs is a smart financial planning instrument that helps in wealth creation, step by step, over a period of time. SIPs follow a disciplined approach towards building wealth as it cultivates the habit of investing regularly for a substantial period. Following are the marquee benefits of SIP:
- Disciplined investing: Stock Market is extremely volatile and understanding the behavior of stocks or mutual funds needs a deep understanding of the market. Moreover, research and analysis of a particular stock or mutual fund eat up a lot of time. Further, it is still risky but with disciplined and regular investments in the stock market investors can minimize their risk. SIP thus eliminates the need for active tracking of the stock market. By investing in SIP the investor need not worry about when and how much to invest in a mutual fund
- Simple and Convenient: Investing in SIPs is simple and convenient as investors need not plan and strategize their investments instead there are professional fund managers who provide their expertise to take care of and multiply the SIP investments
- Quick and Easy: Applying for SIP is really quick and easy. A completely filled application form along with all the KYC documents and a signed form that allows for an auto debit facility is required to start a SIP. Also monitoring and tracking the progress of invested money in SIP can be conveniently done through a periodic statement of accounts
- Rupee Cost Averaging: This is the core mechanism behind the working of a SIP and is one of its most advantageous factors as it eliminates the need to time the market. The mechanism is that investor invests a fixed amount of money in SIP on a regular basis and with this invested money mutual fund units are purchased. Now as the amount invested is constant, the investor can buy more units when the price is lower and viz. thus averaging out the rupee cost.
- A benefit of compounding: Investors can take the benefit of compounding by investing in SIP as the amount invested in the SIP on a regular basis helps in creating a substantial amount of wealth which includes the amount invested by investor plus returns that are compounded over the years.
Thus above are the benefits of investing in SIP. Following are a few smart financial planning tips while investing with SIPs:
- Plan your SIPs as per your wealth creation goals. Invest frequently in SIPs to increase chances of buying more units when the prices are low
- Look for a long-term investment plan as SIPs reap good returns for long-term investments
- Diversify your investments to reduce risk and optimize returns
Thus the only mantra that you need to remember while investing in SIPs is that “Longer the investment horizon better would be wealth creation” so start investing, earn bigger returns and see your money multiply in the long run.