If you are new to the world of investing, you would have often come across the phrase SIP investment. While you may hold prior knowledge about what SIP is, you might know everything related to this investment concept. This article aims to act about investment guide of SIP to investors. Read on to know more.
What is the SIP?
The SIP is short for Systematic Investment Plan. It is a tool of investment, available to investor that allows investing in mutual funds. Investment under this method and usual investments are completed towards the preferred mutual fund plan for a defined period of time. The periodicity of the intervals can be anything according to the needs of the investor. Common periodicity intervals are daily, weekly, monthly, semi-annually, or annually. SIP investments are quite flexible in nature.
Types of SIP
There are several types of SIP that an investor can choose from. Some of the most common types of SIP in India are briefly explained before:
- Normal SIP – Normal SIP or vanilla SIP are regular SIP. Under these traditional modes of investment, a fixed amount is invested at regular intervals for a fixed period of time.
- Flexible SIP –Flexible SIP offers investors the opportunity to alter their investment amount at each interval. This type of SIP is ideal for investors who have an irregular flow of income. Investors who wish to make the most of market fluctuations also prefer flexible SIP.
- Step-up SIP – Also known as top-up SIP, these types of SIP are ideal for salaried or self-employed individuals who expect a raise in their salary or income at regular intervals. Under these SIP, an investor can increase their SIP amount by a fixed percentage or number at regular intervals for a defined period of time.
- Perpetual SIP –Perpetual SIP do not have any end date. They go on forever. However, note that an investor can stop their investments by providing instructions to the AMC (asset management company) or fund house.
Benefits of SIP investment
There are several advantages of investing in mutual funds via SIP mode of investment. Some of these are:
- Disciplined investing
As SIP ensure regular investments in your mutual funds, SIP investments instill a sense of financial discipline among investors which is necessary in the world of investing.
- Rupee cost averaging
SIP invest in the markets irrespective of the market phase. As a result, an investor ends up allotting higher mutual fund components when the marketplaces are vice versa and low. Averages of that is the absolute expense of the common asset units bought and the idea is known as rupee cost averaging.
- No need to time the markets
SIP investments eliminate the need to time the market as regular investments are made in the mutual fund schemes irrespective of the market cycle.
- Power of compounding
SIP investments enjoy the benefits of compounding. Under compounding, your returns are reinvested to attain further returns. The power of compounding is huge. It exponentially increases the returns on your mutual fund investments.
- Easier on pocket
Anyone can invest in mutual funds via SIP. You do not need a substantial amount to begin your journey with SIPs. You can invest as low as Rs 100 per month in mutual funds via SIP.
SIP investments are ideal for individuals who are new to the investing world. If you wish to understand the future value of your investments, you can use an investment tool known as SIP calculator. A SIP return calculator can also be used backward to understand the SIP investment amount needed to reach a particular corpus. Happy investing!