What is SIP – Systematic Investment Plan?

 

SIP Investments or systematic investment plan is a prevalent method of investing, followed by millions of Indians. It is a method of investing in mutual fund schemes with a fixed amount at fixed intervals. It is similar to making savings over time and investing those in the equity or debt-related mutual funds. One can go and look up the best mutual funds online and set up your SIP investment plans.

How does it work?

Let's say you want to make investments in SBI mutual fund online. You would have to search for the specific mutual fund on the SBI website and look for the most suitable scheme. Once you apply for a particular SIP plan, you also set a date for investment every month, and you send these standing instructions to your bank. After your SIP plan is set up, the pre-decided amount will be automatically debited from your bank account and invested in the scheme at the pre-determined date. A certain number of units of the scheme will be allocated to you based on the NAV of the fund.

With every subsequent investment date, additional units are allocated to you. Every subsequent investment makes the total investment larger, and thus a larger return on those investments.

Most mutual funds have a minimum amount of Rs. 100 to Rs. 500, making it possible for anyone to start saving using mutual fund schemes.

SIP investments are low-risk investments, even during the time of market crashes as it helps in avoiding losses in the long term. The most important task for an investor is to determine which scheme to invest money in, depending on the fund manager, past returns, fund investments, expenses and lock-in period.

There are multiple types of SIP investments:

1.    Top-up SIP
This type of SIP allows the investor to increase your investment in a scheme periodically when you have more funds available with you. It also helps by investing in the best performing mutual funds at regular periods.

2.    Flexible SIP
Flexible SIP type is a type which allows you to invest in a scheme flexibly. You can change your investment amount at every period, allowing people to adjust their cash outflow as per their needs and preferences.

3.    Perpetual SIP
This type of SIP allows you to keep investing a fixed amount without an end date to the mandate. It is preferred by people who have a stable income, and also allows for easy redemption at any time.

Why are SIPs the best investment?

Systematic investment plans are the most simple and effective saving method for any individual. It makes it easier for people to save money for the long-term or any specific goals such as buying a car, house, etc. It effectively uses the power of compounding by helping your investments earn returns on every subsequent investment.

The ease of redemption is another factor that makes it a favorable investment. An investor can redeem his / her units anytime, after the lock-in period, if any, is over.

To know more about SIPs, and to invest in mutual funds, contact us. We're the best financial advisor in Surat. We can help you invest in your future.


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