You must have heard the name of SIP at one time or another. What is SIP? Why should we invest in SIP? What are the benefits of SIP? All these questions must be running in your mind.
Nowadays SIP is very popular as an investment. In today’s time we all want to build wealth by investing somewhere. Some invest in gold, some in the stock market or some invest in FD, PPF etc. One of these popular options is SIP, which has been growing rapidly for the last few years and its potential is visible in the future as well.
What is SIP
SIP means Systematic Investment Plan. It means to invest continuously in an investment plan systematically.
In simple language, you keep putting money continuously in the scheme of any one mutual fund, due to which you accumulate a lot of money in maturity. You can understand this with the example of a piggy bank of your house, you keep putting some money in it every day and in the last when you break it, a lot of money comes out of it. But here you do not get any interest on that money but in SIP you get profit on your money.
SIP is a way to invest in Mutual Funds. In SIP, you deposit a certain amount in your portfolio continuously at a fixed interval, which builds up your wealth in the long run. Through SIP, you can achieve your goal by investing in any scheme matching your objectives.
Starting a SIP is very easy these days. When you add your SIP Biller to your bank account or enable ECS, your SIP installment is automatically deducted from your bank account on the due date. For this you have to keep auto debit on.
Why only SIP?
Most of the people are not able to make big lump sum investment. They can also start investing in SIP with low investment.
Mutual funds invest most of their share in the stock market. Now suppose you want to invest in the stock market, now you have three options.
First of all, Choose Good Stocks by investing your own research and time. If you do not have good knowledge then you can lose your money in this.
Also read: Best Stocks To Buy India For Short Term (2-3 Years)
Second, invest through an Investment Advisor. In this method, you have to pay the investment advisor a fee and he advises you to buy and sell shares again and again, in which you have to spend time to do all these transactions. Despite going through an investment advisor, you may incur losses.
Third, in this way you can invest through Mutual Funds, in which you neither have to spend time nor do regular transactions. It also does not have to track your portfolio from time to time. Thus investing in mutual funds can be done to take advantage of market returns.
Let us try to understand this with an example. Suppose your investment advisor advises you to buy MRF shares. Let the value of one share of MRF be Rs 60,000. Now most of us cannot invest such a huge amount at once.
Now through mutual funds here, our fund manager can buy MRF shares for our portfolio with the money coming from different people. Thus mutual funds provide us participation in those stocks which we are unable to buy.
What is the minimum investment required in SIP?
There is also an advantage of SIP that you can start your investment with just Rs 500. There is no upper limit. You can invest according to your income in SIP.
You can start investing in SIP from your very young age. The sooner you invest in it, the more you will be in profit. For example, if you have started a SIP of only Rs 500 at the age of 25, so even according to the return of 12%, by the age of 60, you will have Rs 33 lakh settled in your hands.
Why should I invest in SIP?
At one stage of the age, we all need money for some work outright. For this we invest in one way or the other. SIP also facilitates us to fulfill our dreams in future.
When you invest disciplinedly through SIP, your chances of getting good profits increase. No matter how bad you choose the worst SIP scheme, it also has the potential to give you returns in the long run. So you should not hesitate at all to invest in SIP.
Another major reason for investing in SIP is the low financial burden. SIP is the best option for investment for middle class and employed people. All other additional investments ask you for a slightly higher amount whether it is gold, or FD. One can avail SIP returns by investing Rs 500 or Rs 1000 every month in SIP.
SIP for employed people
SIP is the best option for the employed person. They should keep the date of deduction of SIP within 2 to 5 days from the date of credit of their salary. So that there is no risk of missing their installation. Employed individuals can save their tax up to Rs 1.5 lakh under Section 80(C) of Income Tax by investing in ELSS scheme.
Rules for doing SIP
If you want to make a good wealth by investing in SIP, then you have to follow some rules. Due to which it will be easy for you to achieve your goals within the time frame.
You should choose SIP according to your goal and risk taking ability.
As far as possible, never let your SIP installment bounce. If your installment bounces then you may have to bear the loss in cost and compounding.
The most important thing is patience. You have to give some time to your investment. Many times after starting SIP, some people start seeing their portfolio negative, due to which they panic and exit by selling their investments. Here you must keep in mind that you have to give time to your investment.
Benefits of investing in SIP
Investing through SIP gives you many benefits.
- There is no problem of financial burden due to less investment.
- The pooled funds are handled by a professional fund manager thereby reducing the amount of risk.
- You can get the amount of dividend from time to time by choosing the Dividend plan of SIP.
- You can increase or decrease your SIP amount whenever you want.
- Money is invested by the fund manager in the stock market, gold, bonds, etc., which keeps your portfolio diversified.
- Time plays the most important part in SIP. The longer you stay invested, the faster your returns will grow. In SIP, you get tremendous benefit of compounding. Let me explain it to you with the help of an example.
Akshay and Avinash both started SIP of Rs 5,000. Akshay came out with 75.8 lakhs in 20 years. The same Avinash is leaving with double the amount of Akshay by investing only 5 more years. This is called Power of Compounding in SIP.
- One of the main advantages of SIP is that you can withdraw your money whenever you want. You can withdraw all or part of it as per your requirement in all SIPs except ELSS funds.
- You do not have to take time out to invest in SIP. Once you can be sure by doing ECS or Bank mandate in the bank. The installment will automatically be debited from your bank on the due date.
- In today’s time, the rate of interest on their FD has been reduced significantly by almost all the banks. Most of the FD plans are not able to beat inflation as well. So here the importance of SIP increases. By making regular and disciplined investments in SIP, one can beat the inflation and get good returns.
- Once KYC is done, you do not need to do KYC again and again. You can buy mutual funds directly on the basis of your PAN card.
- There is no paperwork involved in SIP and there are no chances of money sinking as mutual funds are regulated by SEBI.
If you are thinking of getting SIP done after reading this post, then you are going to do absolutely right. The younger you start investing, the more you will benefit. SIP can be started at any age even if you are a student. Therefore, as a good investor, you can start investing in SIP.