What is SIP and benefits of investing in SIP?

Today we will tell you about what is SIP. Do you also want to know about Systematic Investment Plan (SIP) ? So read it completely and know the advantages and disadvantages of investing in SIP!

This is a very Genuine question, which every new investor asks about SIP, what is SIP or Systematic Investment Plan?

If you also want to fulfill any financial goal or dream of making a lot of money, then SIP for Mutual Funds helps you to achieve it.

What is SIP?

It is a way of investing a fixed amount, which can be in a mutual fund regularly, on a monthly or quarterly basis. SIP allows you to buy units of any mutual fund scheme of your choosing on a given date .

An investor can invest a pre-defined amount in a chosen MF scheme every month or quarter , which can be done from his bank account through ECS (Auto-Debit) facility. It works like the amount deposited in a bank and the units purchased every month are added to your previous units.

How SIP Works?

SIP is a basic investment plan. Your SIP is either amount-based or quantity-based. In the first plan your investment amount is fixed while in the latter, the number of units to be purchased is fixed.

Once you have selected your SIP scheme, the money for SIP is automatically debited from your bank account at a specified interval. The debited amount is then invested in the mutual fund that you have chosen. Based on your pre-determined investment amount and the market rate of the mutual fund, a proportionate number of units of the fund are allotted to you.

To invest in SIP, investors have to submit all the required forms along with an application form and SIP registration form in the branch of their chosen AMC or with any Depository/ Stock Broker by selecting Scheme name, Amount, Frequency and SIP date. Happens.

After registration by AMC, the amount is automatically debited from the bank account of the investor and invested in the selected fund.

You can also invest an amount as small as Rs 500 per month in SIP. SIP gives you the benefit of compounding and rupee cost averaging. Compounding helps in increasing the returns of your investment rapidly.

To make good use of the benefits of compounding in SIP, you invest in the SIP scheme for a long time and by doing so you can earn more profit from your money.

Types of SIP

Let’s know about the types of SIP:-

Top-up SIP

Also known as Step-up SIP , it enables you to increase your SIP amount at regular intervals. You can start with a small amount in the beginning and gradually increase the amount you invest. Adding SIP amount regularly is an easy way to build wealth.

Flex or Flexible SIP

A flexible SIP allows you to vary your investment amount every month. If you do not want to invest a fixed amount, you can take a Flex SIP.

Trigger SIP

In this type of SIP, the investor allows the investor to redeem the full amount or part of his mutual fund or automatically switch his investment completely to another scheme, when it is on the pre-specified date, price, NAV. is reached. Trigger Point can be set either upside or downside.

Perpetual SIP

Normally we take a SIP for a predetermined, fixed tenure like 1 yr, 2 yr, 3 yr or 5 yr. If we do not define the last date of our SIP, leave it blank, then AMC put it in Perpetual SIP by default. Almost all Asset Management Company (AMC) will consider such SIP to continue till 2099 unless we give a notice to the AMC to stop it.

SIP Benefits And Risks – Advantages And Disadvantages Of SIP

Benefits of SIP

We know that SIP is not a high risk investment and that is why it is the choice of small investors. SIP gives you better returns in the long run.

Some of the benefits related to SIP are given below:-

Flexibility

SIP is very easy to start or stop. You can adjust the SIP according to your needs according to its investment parameters like: date, frequency, amount, etc. Can also modify. For example, if your income increases, you can also increase the amount to be invested.

Convenience

You do not need to visit the AMC office or deposit a check every month. All you have to do is sign an auto loan / ECS form and the amount will be deducted from your bank account on the dates you choose. SIP can also be started online from the website of AMC.

Wide choice of schemes

You get a wide choice of Mutual Fund schemes and you can invest matching your risk profile, investment objective or financial goals.

Low investment amount

You can start a SIP with as low as Rs 500 per month. ,

Diversified investments Initiating

A SIP in Equity Mutual Funds allows you to leverage investments in different sectors and companies and thus spread your exposure across companies, sectors and market capitalisation.

Disciplined approach to investing

By choosing to invest regularly, you bring discipline to your investments as you treat your SIP in a month like any other fixed expense, be it paying house rent, buying groceries, eating out Or to pay the monthly tuition fee for your children.

Inculcates the savings habit

It inculcates the savings habit as you pay a fixed amount and invest it systematically every month or quarter.

Helps achieve your long term goals

SIPs help you to achieve your long term goals like – retirement, children, higher education and their marriage or so on. You can actually set a target amount for your goal and invest every month over a period of time to achieve the same.

For example – You are of 30 years of age and want to create a corpus of 5 crores for your retirement at the age of 55 years. You need to invest only Rs 27,000 per month for the next 25 years (return of 12%).

Disadvantages of SIP – Risks of SIP

In this way, SIP is not a high risk investment, yet it is subject to the market and also has some risk factors. Know here what are the risks associated with SIP : –

Price Risk:
Mutual Funds investments are subject to market risks, which means that the value of your investment through SIP may decrease and the price value of your investment may also fall. By the way, the risk in SIP depends on our investment holding period and the longer it is, the less the risk.

Lock-in periods:
Many times we invest in such Mutual Funds scheme, which have more lock-in periods, which can be from 5 yr to 8 yr. Exiting before maturity in these Mutual Funds can prove to be costly.

Credit Risk:
If a particular company or its entity is downgraded by a credit rating agency, the value of the NAV of that AMC also falls. If the price of the NAV falls, it affects the value of the entire portfolio.

SIP FAQs (Frequently Asked Questions)

So friends, by now you know what are SIPs?  Let us know about some questions related to SIP:- 

What is the minimum and maximum amount one can invest in SIP through mutual funds?

In a SIP investment, you can start with as low as Rs 500 as your investment and go up to whatever limit you want.

When is the best time to invest in SIP?

There is nothing like a good timing when it comes to investing.

Why choose Systematic Investment Plan?

If you are not ready to invest in lump sum or if you want to reduce your risks then you can opt for SIP.

Should I choose SIP for long term?

Any investment tenure can be chosen by you. Because, it has been proved that long term investment gives higher returns as compared to short term investment.

Do all investments made through SIP get tax benefits?

If you invest in ELSS through SIP, you will get Rs. 1.5 lakh PA under section 80C exemption is available.

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