What is a SIP ?
A systematic investment plan (SIP) is a plan in which investors make regular, equal payments into a mutual fund.SIPs allow investors to save regularly with a smaller amount of money while benefiting from the long-term advantages of investing. A systematic investment plan involves investing a consistent sum of money regularly, and usually into the same security. A SIP generally pulls automatic withdrawals from your bank account and may require extended commitments from the investor. Unlike a lump sum investment, you spread your investment over time with an SIP therefore, you don’t need to have a large amount of money to get started with your mutual fund investment through SIPs. Most brokerages and mutual fund companies offer SIPs.
How SIPs Work
Mutual funds and other brokerage companies offer investors a variety of investment options including systematic investment plans. SIPs give investors a chance to invest small sums of money over a longer period of time rather than having to make large lump sums all at once. Most SIPs require payments into the plans on a consistent basis—whether that's monthly,quarterly or annually. For Example if you invest in a mutual fund scheme through an SIP, you purchase a certain number of fund units corresponding to the amount you invested. You don’t need to time the markets when investing through an SIP as you benefit from both bullish and bearish market trends as SIPs work on rupee cost averaging method.
SIPs tend to be passive investments because once you put money in, you continue to invest in it regardless of how it performs. That's why it's important to keep an eye on how much wealth you accumulate in your SIP. Once you've hit a certain amount or get to a point near your retirement, you may want to reconsider your investment plans. Moving to a strategy or investment that's actively managed may allow you to grow your money even more. But it's always a good idea to speak to a financial advisor or expert to determine the best option for you.
Advantages of SIPs
- You can start investing with as low as ₹ 100 a month.
- Much better than recurring deposit (RD).
- Power of real compounding.
- Rupee cost averaging to average out your buying cost.
- Low Risk.
- Periodic automatic Deduction of SIP amout from your source bank account.
Disadvantages of SIPs
- Long term commitment
- Penalty on early withdrawl
- Considerable risk involved
- Require maintaining requisite balance in your source bank account.
You can invest in SIP online by signing up for an investment account with the fund house of your choice. Before you can initiate an SIP into a mutual fund of your choice, you need to undergo KYC verification.
Take the time to review your investment decisions and contact one of our helpful Financial Advisors to answer your questions regarding SIPs.
