SIP – Systematic Investment Plan

A Systematic Investment Plan is a way of investing in mutual funds in which an investor selects a mutual fund scheme and invests a certain amount at predetermined times.

Understanding the Significance of SIP

SIP investment plans involve investing a modest amount over time rather than a large sum all at once, which results in a better return.

SIP investments may be started at any moment, assuring a low risk with the right scheme plan for the client. It is critical for the investor to select the strategy that best fits his long-term aims. As a result, there is no appropriate time range within which an investor should begin a SIP investing strategy; nonetheless, the sooner the better.

Let us illustrate with an example. If you wish to invest in a mutual fund and have set aside one lakh rupees for the purpose. You now have two options for making this investment. You can either make a one-time contribution of Rs 1 Lakh in the mutual fund, which is known as a lump sum investment. You can also invest through a Systematic Investment Plan, or SIP.

How Does SIP Work?

When you sign up for one or more SIP plans, the money are automatically deducted from your bank account and invested in the mutual funds you’ve chosen at the set time interval.

At the end of the day, you will be assigned mutual fund units based on the NAV of a mutual fund.

With each SIP plan investment in India, extra units are added to your account based on the market rate. With each investment, the amount reinvested grows, as does the return on those investments.

The investor has the option of receiving the returns at the conclusion of the SIP’s duration or at a monthly interval.
You must initiate a set-amount SIP. Say Rs 500. Thereafter, every month, Rs 500 will be taken from your account and auto-credited to the mutual fund in which you choose to invest. This will continue till the time period expires.

Systematic Investment Plan Types (SIP)

  • Perpetual SIP

This SIP Plan allows you to continue investing after the mandate date has passed. SIPs often have an expiration date after one year, three years, or five years of investment. As a result, the investor can withdraw the money deposited anytime he wants or according to his financial goals.

  • Flexible SIP

As the name implies, this SIP plan allows you to invest any amount you wish. An investor can adjust the amount to be invested based on his or her personal cash flow requirements or preferences.

  • Top-up SIP

This SIP allows you to raise your investment amount on a regular basis, allowing you to invest more when you have a larger income or available amount to invest. This also aids in making the most of assets by investing in the finest and highest performing funds on a regular basis.

The Advantages of SIP Investing

  • Creates a Disciplined Investor

If you lack superior financial expertise about how the market works, SIP may be the finest investing choice. You do not have to waste time determining the best moment to invest.

With SIP, money is automatically taken from your account and invested in mutual funds. As a result, you may sit back and relax. Furthermore, unlike lump sum contributions, the periodicity ensures that you are actively striving to develop your capital.

  • The Cost Averaging Factor in Rupees

The benefit of rupee cost averaging comes with SIP. Because your investment amount remains consistent over time, you may benefit from market volatility by using rupee cost averaging with SIP.

SIP invests a predetermined sum that averages out the value of each unit. As a result, you may purchase more units when the market is low and fewer units when the market is high, decreasing your average cost per unit.

  • The Compounding Power

SIP is a disciplined method of investing that guarantees you are continually striving to expand your money. The automation ensures that your investment increases rather than being a lump sum in which you may forget to contribute some time. The little amount you invest everyday increases to a substantial corpus as a result of your commitment and compounded returns over time.

  • Ease of Usage

As previously said, a SIP allows you to relax about your money. To begin the SIP, just complete an application form and commence an auto debit or post-dated checks.

Use Groww’s SIP Calculator to determine predicted returns. Specify the SIP amount, time period for which you want to invest in the mutual fund, and estimated return. At conclusion of the time period, you will get the complete investment amount. You may choose the proper amount to start a SIP with based on how much you want your ultimate amount to be.

SIP Calculator

Disclaimer: Mutual funds are exposed to market risks; please read the papers carefully before investing.

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