Systematic Investment Plans, popularly referred to as SIPs, have been an investor’s favourite, resulting in disciplined assets. Now, what is SIP? Well, it is where you can invest a predetermined sum of money at regular intervals in a mutual fund or an investment option of your choice. This method of regular investing not only encourages systematic savings but also enables one to use market variations to their advantage, so there is no timing decision to be taken regarding the market. Known as the best method of accumulating wealth over some time, investment advisors recommend SIPs as a guarantor to increase wealth for sure systematically. But is there any natural method behind this systematic madness? Here’s a complete guide on what it takes, SIP benefits, and how it works.  

Introduction to SIP

A SIP is an option for regular, planned investment in mutual fund schemes. It is similar to your recurring deposit, where you put a small monthly deposit into your savings account. A SIP is simply a technique used to make investments in mutual funds regularly. You can invest a predetermined amount of money at regular points in time: weekly, monthly, or at the quarter.

What are the main features?

• Regular Investments: Systematic investments inculcate a habit of saving.

• Flexibility: Investors can start SIPs with amounts as low as INR 500.

•Sticks to Discipline: Advises towards a disciplined approach in investments without being concerned about the timing of markets.

How Does SIP Work?

SIP operates on the fundamental concept of the systematic investment plan. Below is an inscribed procedure on how this entity goes on to function:

1. Mutual Funds Selection: Select an investable mutual fund that suits the best objectives of investment and the tolerance to risk.
2. Investment Amount: Determine how much you would like to invest regularly.
3. Set the Frequency: Choose how frequently you’ll invest – typically monthly.
4. Automate the Process: Set auto-debit instructions with your bank so that these investments happen on time.
5. Monitor and Adjust: Keep a constant review of your investment portfolio whereby you know that changes may need to be effected.

SIP refers to the investment in units of the mutual fund scheme on a specific date of every month. The units are allotted to anyone based on the prevailing market rate, as revealed even in the case of NAV. Thus, this would imply that SIP makes an extensive amount of investment when the NAV is low and makes lesser investments when the NAV is high. This kind of approach is known as the Rupee Cost Averaging approach.

Benefits of using SIP

1. Rupee Cost Averaging: Through SIP, one enjoys the benefit of market fluctuation. Investing a regular fixed sum helps you buy more units when the NAV is low and fewer units when the NAV is high, which averages the risk in the investment.
2. Compounding Power: The longer you invest, the more time your money grows. With each year invested, your small sums of cash quietly and automatically grow, unnoticed, into somewhat more significant sums.
3. Discipline and Convenience: SIPs instil discipline in the person. Saving through this means is also very convenient because an individual automatically invests with a single designated amount without consciously engaging in the said financial process.
4. Affordability: Contrary to assumption, starting unparallel amounts with the investment is never a prerequisite. SIPs, on the other hand, can be initiated with essential starting amounts and so are pocket-friendly to a broader population.
5. Flexibility: SIPs are flexible; you can always increase the SIP amount of your investment, skip the SIPs, or even stop the plans as and when required.

SIP Types

1. Regular SIP: This is the most common variety in which you invest a fixed sum at regular intervals.
2. Top-up SIP: Can enhance the SIP amount annually, which you feel is ideal when your income increases.
3. Flexible SIP: This allows an investor to trade the value of the invested amount at will, dependent on their level of financial soundness.
4. Continuous SIP: This goes on forever until you stop it. There is no need to select an end date.

How To Select The Right SIP?

These are factors that can be all put in place to ascertain the most valuable SIP:

1. Investment Objectives: Clearly define your money goals. Are you saving for retirement, a child’s education, home purchase?
2. Risk Tolerance: Knowing all of that helps you understand what your risk appetite is. So equity funds are riskier, and hence, they promise better returns, while debt funds are way safer and give you the principal amount and a reasonable extra return.
3. Mutual Fund Performance: Analyse the historical performance of the mutual fund. Look for a fund that has been a steady performer rather than funds with short-term spikes.
4. Fund House Reputation: Go for funds issued by a reputable fund house that has markets in its performance track record.
5. Expense Ratio: Keep an eye on the expense ratio and beware because higher costs mean diminished returns over time.

How do I Start an SIP?

It is really simple to start your SIP:

1. KYC Compliance: Ensure you are KYC compliant to invest in the mutual fund.
2. Choose a Fund: Should use any online means allowed or should seek a financial advisor who can guide you in choosing a fund.
3. Open Account: Open an account with the mutual fund house or a broker.
4. Automate Investments: Connect your bank account to auto-fund and get your SIP up.

 Conclusion

SIPs offer a disciplined investment mode with a systematic plan in mutual funds. It is flexible, affordable, and most convenient for new to experienced investors.

Wright Research offers centred on AI robo-advisory services, with a high orientation on quantitative research, most crucially based on the methodology of data in decision-making. Wright Research supports investors to look at high-quality stocks to gain overperformance. The same assures you make informed choices in line with your financial goals. Start your SIP journey today, and see your investments grow big over a period of time.

Read More:- Lower Circuit in the Share Market: A Comprehensive Guide