We’ll start with the full form of SIP, I am sure most of you are aware of it but those who are not, it is the Systematic Investment Plan.
If you’re looking for a way to earn money and build your wealth, SIP is one of the investment opportunities to start with. But before starting off you’ll have to get an idea what exactly is SIP, how it works, and why more people are starting to invest in it?
What is SIP Investment?
Now that you know the full form, let’s understand what SIP investment is. SIP is a method of investing in mutual funds at regular intervals, usually monthly or quarterly.
Instead of investing a large lump sum at once, it is a way for you to invest a small amount regularly so you won’t feel the burden of it and it helps you to develop a consistent saving habit.
To invest, you choose a mutual fund, then decide how much you want to invest every month or quarter, and the same exact amount will automatically get deducted from your bank account on the set date.
Each set of amounts will help you buy mutual fund units based on the current Net Asset Value (NAV). Over time, this allows your money to grow through compounding and rupee cost averaging, making SIP a simple yet powerful way to build long-term wealth. Still confused? Let’s try with the numbers.
How Does SIP Work?
Let’s understand how SIP works with an example.
Let’s say you invest ₹2,000 every month in a mutual fund through SIP. When the market drops, your amount will help you buy more units but when it rises it will buy fewer units. This process is known as rupee cost averaging.
Now coming to the compounding term, the return that you get from the investment will be reinvested, so in short you are getting returns on your returns.
How to Invest in SIP?
Now that you know what SIP is and how it works, we’ll get into the details of how you invest in SIP.
- Set Your Financial Goal
You’ll have to set what your focus will be when you’re investing, whether it’s education, retirement planning, buying a house or something else.
- Choose the Right Mutual Fund
Selecting the right mutual fund is a difficult yet an important decision which I won’t be able to help you with but an advisor will be able to help you select the right equity, debt, or hybrid fund based on your risk tolerance.
- Decide the SIP Amount and Time Period
After selecting the mutual fund in which you’ll start your SIP, decide the amount that you’ll be able to invest each month or quarter and what will be the time period. It is recommended to commit yourself for a long-term.
- Complete KYC and Registration
Without it, nothing can happen. The next step will be verifying your identity and setting up the automatic payments online.
- Monitor and Review the MF Performance
It is also recommended to check the performance annually and adjust your SIP if your set goals or the income changes. The more the merrier.
Benefits of SIP Investment
Well, we all know the biggest benefit will be earning the money but knowing why it’s one of the most trusted investment methods in India. Let’s check that out.
1. Encourages Financial Discipline
SIPs help you create a habit of regular investment and consistent saving, whether you are saving every month or not, this method will help you save a drop that can multiply to become an ocean.
2. Affordable and Flexible
What is ₹500 nowadays? Gen Z’s pocketmoney? You can start SIP with as low as ₹500 per month or more, depending on your pocket. Or you can start with this and increase the amount anytime in the future.
3. Goal-Based Investing
If you know what you want with it then there’s no stopping you. Like I said before, set your focus like buying a car, education, retirement planning or buying a house.
4. Stress-Free Investing
Well stress-free in terms of that you don’t have to make a manual payment every month or be stuck to the phone screen to check out where to invest your money on a daily basis. Automated deductions will make your SIP investment effortless.
Why Choose SIP Over One-Time Investing?
Well, if this question hasn’t come to your mind now, it will come in future so I am telling you beforehand. Many new investors wonder why invest every month, can’t we do it at once. So, SIPs are better than lump-sum investing and it is because of risk management.
When you invest in MF through SIP, you invest across market cycles, reducing the risk of poor timing. With lump-sum investment, if the market falls right after you invest, your portfolio may take time to recover.
10 Questions About SIP Investment People Ask
1. Why Should I Invest in SIP?
Well, SIPs are an ideal choice if you have long-term goals like retirement, education, or wealth creation.
2. Can I start SIPs in multiple mutual funds?
Yes, of course. The more, the merrier. You can invest in multiple funds, via SIP, for diversification.
3. Is SIP safe during market crashes?
Yes, it is not just safe but it will help you buy more units.
4. Can you stop SIP anytime?
Yes, it is totally your choice. SIPs are flexible and can be cancelled anytime.
5. Is SIP better than fixed deposits?
Well, it depends. Are you looking for a safer option or somewhat risky. FDs are safe but they won’t be able to give you the sort of returns SIPs do. Over a long period of time, SIPs often offer higher returns, but like I said they carry market risk.
6. What happens if you miss a SIP payment?
Well, money matters to all. Missing one payment doesn’t cancel your SIP, but if you miss it a lot, it may pause it temporarily.
7. How long should you continue SIPs?
Recommendation will be for at least 5 years, you can go for 10 years as well to maximize the benefits of compounding.
8. Can you increase my SIP amount?
Yes, you can. Top-Up SIP is the term you’ll have to look for to increase your investment amount periodically.
9. Is SIP suitable for beginners?
Absolutely, beginners or experts, SIPs are the easiest way to start investing.
10. Can SIP give negative returns?
Well, yes, that’s why I said before that selecting the MF is an important decision. But over time, SIPs tend to average out market volatility and deliver stable growth.
Disclaimer
This article is for informational purposes only. It should not be treated as professional advice. Please verify independently before making any decision.
