SIP - Systematic Investment Plan. What it is? How does it work?

SIP - Systematic Investment Plan - Mutual Fund Sahi hai

‚ÄčTheoretically, timing the market plays the most crucial role. However, no one can ever tame the fluctuations that occur with time. While investors are busy timing the market conditions, they usually miss out valuable opportunities and can end up with loss. For those who do not wish to put their money to such a potentially risky strategy, TIME ** not timing** could be the best alternative and you can achieve this by taking up an SIP (Systematic Investment Plan).

So, what is SIP?


Systematic Investment Plan (SIP) is a way to invest fixed amount of money periodically into mutual fund that you choose. Ex: Kushal wants to start a monthly Rs. 5000 SIP into Reliance Top 200 Fund for next 5 years. Here the amount is Rs. 5000, frequency is monthly, period is 5 years and Reliance Top 200 Fund is the mutual fund he chose.

Well, SIP being one of the most suitable alternatives, allow the individuals to invest without getting wrecked by the current market status regularly. Considered as a designed approach towards inculcating the habit of regular investing and building the wealth for future, it is a smart, hassle-free and safe method for individuals interested in mutual funds.



How SIP can be beneficial?


Lot of us start investing with a lot of energy but fail to continue with the same enthusiasm to build a required investment corpus. SIP brings in the discipline, cutting away emotional biases. All investors who are yet to attain an investment discipline must start a SIP soon. It effectively facilitates you in building wealth, step by step over a specified period of time. Moreover, the two core beneficial features of SIP include Rupee Cost Averaging and Power of Compounding. Let's discuss about these in detail!

Rupee-Cost Averaging
Investments are largely based upon the market fluctuations which decide the ideal time of taking an entry into the market. However, the rupee-cost averaging eradicates the need of guessing and allows the individuals to get the best return over a time period.

Consider NAV (Net Asset Value) of a mutual fund is Rs. 20 and the person starts his SIP as Rs. 2000 a month. With his first SIP instalment, he will be allotted 100 units of the fund i.e 2000/20=100units. On his next SIP, the NAV fluctuates to Rs. 16. Thus the investor will buy approx 125 units at this amount. On the third SIP, the NAV is found to rise at Rs. 21 on each unit, so the investor purchases approx 95 units.

With this data, it is evident that the average rate of overall units purchased is Rs. 19. Considering the other way, if he had bought the scheme valuing at 6000 in a lump sum, he would have procured a total of 300 units at the provided NAV of Rs. 20. But, with SIP, the investor gets 20 units extra due to the presence of a Rupee Cost averaging system.

Don't stop investing when the market is high; though you get lesser units, you continue to invest in the market. Since you do not know how high or how low the market will go you continue to invest a fixed amount of money on a monthly basis. Over a period of time, your average cost of acquisition of mutual fund unit comes down to be much lower than what you would have otherwise paid.

Power of Compounding
Power of compounding functions on the basic principle- "the sooner you start, the larger you achieve"! This is explained by Mr. Om Prakash in "6 reasons why you should start investing right now".



How to start SIP investment?

As an investor, you have to create an account with Indoinvesting and complete the KYC process if you are a first time investor. Then you can define your financial goal & time horizon (Ex: Buy an Independent house of Rs. 20 Lakh in 5 years). Our intelligent algorithm suggests you mutual funds matching you risk profile. Then make your initial payment via debit card, net banking. The Further payments are then made in the form of periodical instalments, after you submit the required Bank Mandate (NACH form) to us. The amount is directly credited to Mutual Fund account from your bank account.

Investors, who want to invest without creating a goal, too have an option. They have to search for mutual fund they wish to invest in and click on 'Invest Now' by visiting the mutual fund page. We are here to help you in every step till you achieve your goal. You can read the step by step process of goal based investing here.

Thus, those who aim to achieve greater financial goals must start investing in the SIP (Systematic Investment Plan). It is one of the ultimate ways of depositing your funds to witness capital growth! There are around 1.8 Crore SIP accounts with a monthly inflow of around 6000 crore by the end November 2017. So what are you waiting for. Start a SIP right now.

 

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Mutual fund investments are subject to market risks. Please read the scheme information and other related documents carefully before investing. Past performance is not indicative of future returns. Please consider your specific investment requirements before choosing a fund, or designing a portfolio that suits your needs.