We all have financial goals in our life, but we are unaware of how to plan and invest for it. To plan the financial goals wisely, it is important to know how to invest your money in the right investment instruments.
But what if you don’t have a huge sum of money to invests at once?
This is where a Systematic Investment Plan comes in, more popularly known as SIP. It is a facility for people who are looking to invest in a more disciplined way.
So, the question that arises is how to invest in SIP? SIP allows for the investors to invest a fixed amount of money at predefined intervals in the chosen mutual fund scheme.
How to Invest in SIP?http://How to Invest in SIP?
This fixed amount of money for investment can start from INR 500, while the pre-defined SIP intervals can be on an annual/semi-annual/quarterly/monthly/weekly basis. By taking the SIP route to investments, an investor basically chooses to invest in a time-bound way sans the worries of the dynamics of the current market.
The investor also stands to benefit from the same on a long-term basis because of the averaging cost and the compounding power.
How do SIPs Function?
Investment companies and mutual funds offer investors a wide range of options for investment, one of which is the Systematic Investment Plan. The SIPs give the investors a chance to invest a small amount of money over a longer phase of time rather than choosing to make lump sum payments at once. When you invest in mutual funds through SIP, you can make payments on a weekly, monthly or quarterly basis.
SIPs- A Passive Investment
The foundation of systematic investmenthttp://systematic investment is very simple. Since we are addressing the question, how to invest in SIP, it is vital to understand the principle behind it. SIPs work on the periodic and regular shares or security units of a fund or any other investment.
The rupee cost averaging involves purchasing the same fixed amount of the security, regardless of the price that holds at each of the periodic intervals. As a result of this, the shares can be bought at varying prices and in different amounts even though a few of the plans will let you designate a preset number of shares to invest in.
Since the amount invested is usually fixed and is not dependent on the share or unit price, an investor tends to buy only a smaller number of shares at a time when the unit prices witness a rise.
SIPs, therefore, tend to be a passive investment because once the money is invested, you as an investor continue to invest, regardless of the performance. This also indicates why it is so important to keep an eye on the wealth you accumulate in your Systematic Invest Plan.
Once you get to a stage near your retirement, you may also want to take your investment plans into reconsideration. Transitioning to a strategy or an investment that is more actively managed allows you to grow your money even better.
Advantages of SIP Investments
The Compounding Effect
If you regularly invest through the best SIP for investment http://best SIP for investmentfor a longer-term, the advantages it holds magnify via the ‘compounding effect’.
The compounding effect makes sure that your money witnesses growth over the passage of time with greater returns on the money invested.
For example, if you invest INR 100 in the equity fund, it fetches you a return of 10 per cent every annum. You don’t take out the profit from the equity funds which is then efficiently reinvested in mutual funds and the total corpus is INR 110. The returns you will then earn from the equity fund is now INR 110 and not INR 100, which is the return on your returns.
Equity Fund Investment via SIP
You can invest in equity funds via SIP and enjoy the benefits of compounding. It is always helpful if you choose to start your SIP as early as possible and stay with your investment in the long run to enjoy compounding benefits. It’s always better to start saving and investing on a regular basis as this makes it easier to achieve financial goals.
So, if you are looking to invest in a phased and disciplined manner, SIP is for you. It comes with a huge convenience of starting your investment with an amount as low as INR 100 each month.
On a Parting Note
SIP has become increasingly popular amongst the mutual fund investors today as it helps in investing in a disciplined manner without worrying about market volatility and timing the market.
Now that you know how to invest in SIP, it is important to know that SIPs are gaining popularity amongst the mutual fund investors in India and is a great step in your investment journey.