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A SIP, or systematic investment plan, is a type of investment strategy that enables people to consistently contribute a little but thoughtful sum to their chosen mutual fund scheme. It is the investor who determines details such as the frequency of the investment, the date it occurs, and the investment amount.
Individuals can effectively invest in both rising and declining markets. There are also chances of earning profits by investing in SIP.
Features of SIPs
The different features of SIPs include:
1. Flexible SIP
Also known as Flexi SIP, this SIP enables an investor to modify the SIP amount in accordance with the financial situation and the state of the market. When it comes to market situations, an investor can invest more when the markets are falling and choose a smaller SIP amount when the markets are rising.
2. Top-Up SIP
Also known as step-up SIP, this SIP enables investors to raise your contributions at specific predetermined intervals. For example, if an investor invests ₹2000 per month, he/she can add an extra amount of ₹1000 (also known as additional purchase) that is to be contributed every 6 months till the end of the tenure.
3. Perpetual SIP
The Perpetual SIP does not specify to the investor, the start and end dates for the SIP. It does not have a fixed tenure and continues as long as the investor keeps contributing at regular intervals. Thus, the amount will continue to get debited unless the investor wants to stop the investment.
4. Trigger SIP
This SIP invests in Mutual Funds only if there is the occurrence of a designated event. This investment is perfect for investors who are well aware about the market dynamics. For example, an investor can set up a trigger SIP to start investing if the NAV level of a mutual fund falls below a certain point.
Why to start investing in SIP?
1. Investment amounts are small
This is a less investment option, compared to other investment options like FD and ETFs. By investing in SIP, investors develop a chance of being benefitted even by investing in small amounts.
2. Makes a disciplined investor
Most investors struggle to continue investing for an extended period of time. SIPs by their very nature eliminate the need of discipline altogether that required for the investment journey. The investor no longer needs to make the monthly contributions for them because a predetermined amount is deducted for the chosen plan.
3. Do not require to time the market
Predicting the market is not easy as does not have any consistency or accuracy. Fortunately, SIPs function regardless of the market situation. An amount is fixed regularly by the investor, irrespective of the current market conditions. The investor is likely to get more units if the mutual funds of the investor are affected by the bearish market and vice versa.
4. Power of compounding
An investor who is regularly investing in SIP is likely to receive returns that are magnified by the compounding effect. It ensures that the investor earns profit, not only on the invested amount but also gains on the principal amount. This means, that not only the invested money is receiving gains, but also the returns is earning.
5. Online portfolio tracking
Investors can now start investing in SIP online. They will be given a user ID and password once the SIP has begun so that it can be accessed from any location. From the comfort of their home, investors can follow their SIP, move to a different scheme, cancel SIP, start a new SIP, and even redeem the units.
How to start SIP in share market?
For beginning to invest in SIP, an investor needs to follow some steps. These are:
1. Understanding risk appetite
People invest to fulfill their financial objectives. Before investing in SIP, an investor should determine the risk tolerance. Most of the time, increasing age and financial responsibilities lowers this risk tolerance and vice versa. However, the investor will need to increase their risk appetite if they want a bigger return on investment. Also, understanding the investment goals is crucial to determine risk tolerance.
2. Choosing a mutual fund for investment
Investors can choose from various mutual fund schemes that are available in the market. However, the choice of funds should take into account both the risk tolerance and the personal financial objectives, along with the time horizon.
3. Selecting an SIP
It is important to select a specific date that it is convenient for an investor to pay under the Systematic Investment Plan (SIP). Here, the money is automatically deducted from the bank account. An investor may select more than one SIP date to pay installments.
4. Deciding whether to invest online or offline
The most convenient way to achieve financial goals is to invest in mutual funds through a systematic investment plan (SIP) since it is now easier to invest, both in the online and offline modes and the online mode is more preferred.
5. Staying put till the end of the investment
The most effective strategy to build wealth is through investing in SIP for the long term. Mutual fund prices don’t need to be checked every day. Also, regular timing the market isn’t necessary. Rather, they can choose an investment horizon and wait till the end of the period.
Investing in SIP provides discipline and regular investments in the best mutual funds. It is more reliable to invest in these funds rather than lump-sum investment for the risk factor is considerably low.
Start investing in SIP through the SMIFS mutual funds app and see the consistent growth of the funds. Clients can also contact us on 9830121215 or email us at dm@smifs.co.in
