February 26, 2024

Secure Your Future: The Benefits of Investing through Systematic Investment Plan (SIP)

As we grow older, we realize the importance of securing our future. We want to ensure that we have enough money to live comfortably and fulfill our dreams, even after we retire. However, with the rising cost of living, it’s becoming increasingly difficult to save enough money for our future needs. This is where investing comes into play. Investing our money in a systematic manner can help us achieve our financial goals and secure our future. One such way of investing is through a Systematic Investment Plan (SIP).ICICIDIRECT Zerodha Groww

What is a Systematic Investment Plan (SIP)?

A Systematic Investment Plan (SIP) is a method of investing in mutual funds in a systematic manner. Under this plan, an investor invests a fixed amount of money at regular intervals, say monthly or quarterly, in a mutual fund. The amount invested is automatically deducted from the investor’s bank account, making it a hassle-free and convenient investment option. Investors can choose the amount and frequency of investment, based on their financial goals and risk appetite.

How does SIP work?

When an investor opts for a SIP, they are allocated a certain number of units of the mutual fund based on the prevailing Net Asset Value (NAV) of the fund. For instance, if an investor invests Rs. 5,000 in a mutual fund with an NAV of Rs. 50, they will be allotted 100 units of the fund. The NAV of the fund varies every day, based on the performance of the underlying securities.ICICIDIRECT Zerodha Groww

With each subsequent investment, the investor is allotted more units of the mutual fund, based on the prevailing NAV. This helps in averaging the cost of investment, as the investor is buying more units when the market is low and fewer units when the market is high. This is known as rupee-cost averaging and helps in reducing the overall risk of the investment.

Advantages of SIP

Disciplined approach to investing: One of the biggest advantages of SIP is that it forces investors to be disciplined in their approach to investing. Since the investment amount is deducted automatically from the investor’s bank account, they are less likely to miss an investment or withdraw their money prematurely.

Averaging out the cost: As mentioned earlier, SIP helps in averaging out the cost of investment. This means that investors are buying more units when the market is low and fewer units when the market is high. This helps in reducing the overall risk of the investment.ICICIDIRECT Zerodha Groww

Flexibility: SIPs offer a lot of flexibility to investors. Investors can choose the amount and frequency of investment, based on their financial goals and risk appetite. They can also stop or pause their investments at any time.

Power of compounding: SIPs help in harnessing the power of compounding. Compounding refers to the reinvestment of the returns earned on an investment. Since SIPs are long-term investments, the returns earned on the investment are reinvested, leading to higher returns over the long term.

Professional management: Mutual funds are managed by professional fund managers who have the expertise and knowledge to invest in the right securities. This helps in reducing the overall risk of the investment.

Diversification: Mutual funds invest in a diversified portfolio of securities, which helps in reducing the overall risk of the investment. This means that even if a few securities underperform, the overall impact on the portfolio is limited.

reinvested, leading to higher returns over the long term.

Low investment amount: SIPs allow investors to start investing with a small amount, say as low as Rs. 500. This means that even individuals with a small income can invest and secure their future.

Tax benefits: SIPs offer tax benefits under Section 80C of the Income Tax Act, 1961. Investments up to Rs. 1.5 lakh in a financial year are eligible for tax deduction under this section.

How to start investing in SIP?

Investing in SIP is a simple and hassle-free process. Here are the steps to start investing in SIP:

Choose a mutual fund: The first step is to choose a mutual fund that suits your financial goals and risk appetite. There are various types of mutual funds available in the market, such as equity funds, debt funds, balanced funds, etc. It’s important to research and compare various mutual funds before choosing one.ICICIDIRECT Zerodha Groww

KYC process: Once you have chosen a mutual fund, you need to complete the Know Your Customer (KYC) process. This involves submitting your identity proof, address proof, and other relevant documents to the mutual fund company.

Fill the application form: After completing the KYC process, you need to fill the application form for SIP. This form contains details such as the investment amount, frequency of investment, and other relevant details.

Submit the form: Once you have filled the application form, you need to submit it along with a cheque or a mandate for automatic deduction from your bank account.

Start investing: After submitting the form, your SIP will be activated, and the investment amount will be deducted from your bank account as per the frequency chosen by you.

Investing in SIP is a secure and convenient way to invest in mutual funds. It helps in averaging out the cost of investment, diversifying the risk, and harnessing the power of compounding. SIPs offer a lot of flexibility to investors and allow them to invest as per their financial goals and risk appetite. With the rising cost of living and the need to secure our future, investing in SIP has become more important than ever. By investing in SIP, we can ensure that we have enough money to live comfortably and fulfill our dreams, even after we retire.

We can definitely consider SIP of equity as an option for investing. In fact, equity mutual funds are one of the most popular types of mutual funds among investors in India. Equity mutual funds invest primarily in stocks of companies and are known for their potential to offer higher returns over the long term.

Investing in SIP of equity mutual funds can be a good option for investors who are willing to take some amount of risk in order to earn higher returns. Equity mutual funds are known to be volatile in the short term, but over the long term, they have the potential to offer higher returns than other investment options.ICICIDIRECT Zerodha Groww

By investing in SIP of equity mutual funds, investors can benefit from the power of compounding. Since the investment is made regularly over a long period of time, the returns earned on the investment are reinvested, leading to higher returns over the long term.

It’s important to note that investing in SIP of equity mutual funds involves market risk, and the returns earned on the investment are not guaranteed. The performance of the equity mutual fund is dependent on the performance of the stock market, and there could be fluctuations in the short term. However, by investing in SIP over the long term, investors can average out the cost of investment and reduce the impact of market fluctuations on their investment.

Investors can choose from various types of equity mutual funds, such as large-cap funds, mid-cap funds, small-cap funds, and sector-specific funds, depending on their financial goals and risk appetite.

Investing in SIP of equity mutual funds can be a good option for investors who are willing to take some amount of risk in order to earn higher returns over the long term. However, investors should do their research and choose a mutual fund that suits their financial goals and risk appetite. It’s also important to invest regularly and stay invested for the long term in order to benefit from the power of compounding.

Points should be kept in mind during the selection of mutual fund or equity for SIP

Selecting the right mutual fund or equity for SIP is crucial in ensuring the success of your investment. Here are some points that investors should keep in mind during the selection process:

Financial goals: The first step in selecting a mutual fund or equity for SIP is to define your financial goals. You should have a clear idea of what you want to achieve through your investment. For example, you may be investing to build a retirement corpus, save for your child’s education, or to accumulate wealth over the long term.

Risk appetite: The next step is to assess your risk appetite. Equity mutual funds are known to be volatile in the short term, and investors should be comfortable with the risks involved. Investors should select a mutual fund or equity that aligns with their risk appetite.

Fund performance: Investors should research the past performance of the mutual fund or equity they are considering. While past performance does not guarantee future returns, it can give investors an idea of the fund’s performance in different market conditions.

Fund manager: The fund manager plays a crucial role in the performance of the mutual fund. Investors should research the track record and experience of the fund manager before investing in a mutual fund.

Expense ratio: The expense ratio is the fee charged by the mutual fund for managing the investment. Investors should select a mutual fund with a lower expense ratio, as this can have a significant impact on the returns earned on the investment over the long term

Diversification: Diversification is the key to reducing risk in an investment portfolio. Investors should select a mutual fund or equity that is diversified across different sectors and industries.ICICIDIRECT Zerodha Groww

Exit load: Investors should also check the exit load of the mutual fund they are considering. Exit load is the fee charged by the mutual fund if the investor decides to redeem the investment before a certain period.

Selecting the right mutual fund or equity for SIP requires careful consideration of various factors such as financial goals, risk appetite, fund performance, fund manager, expense ratio, diversification, and exit load. Investors should do their research and seek professional advice if necessary before making their investment decisions.

Some Important FAQ on SIP

Here are some frequently asked questions about SIP (Systematic Investment Plan):

What is SIP?

SIP is an investment method that allows investors to invest a fixed amount of money at regular intervals, typically monthly or quarterly. It is a convenient way to invest in mutual funds and stocks.

How does SIP work?

In SIP, the investor selects a mutual fund or stock and invests a fixed amount of money at regular intervals. The amount is automatically deducted from the investor’s bank account and invested in the chosen mutual fund or stock. This allows investors to invest in a disciplined and regular manner.

What are the benefits of SIP?

SIP has several benefits, including disciplined investing, rupee cost averaging, power of compounding, and flexibility.

Can I start SIP with a small amount?

Yes, SIP can be started with a small amount. Most mutual funds allow investors to start Systematic Investment Plan with as little as Rs. 500.

How long should I continue with my SIP?

SIP is a long-term investment method, and investors should continue investing for at least 5-10 years to reap its benefits.ICICIDIRECT Zerodha Groww

Can I change my SIP amount? Yes, investors can change their SIP amount as per their financial situation. Most mutual funds allow investors to increase or decrease their SIP amount or even pause their SIP.

Can I stop my SIP?

Yes, investors can stop their SIP at any time by informing the mutual fund. However, it is recommended to continue investing for the long term to benefit from the power of compounding.

What are the risks associated with SIP?

Like any investment, SIP also carries market risks. The value of mutual fund or stock may fluctuate based on market conditions, and investors may experience losses.

Which mutual fund is suitable for SIP?

The choice of mutual fund for SIP depends on the investor’s financial goals, risk appetite, and investment horizon. Investors should research the past performance of mutual funds, expense ratio, fund manager’s experience, and diversification before selecting a mutual fund for SIP.

Is it possible to start to SIP online?

Yes, most mutual funds offer the option to start SIP online. Investors can visit the mutual fund’s website or use their mobile app to start their SIP.

Some important platforms where we can create SIP online instantly

Zerodha and ICICI Direct are two popular online brokers that offer the option to create Systematic Investment Plan online instantly.

Zerodha is a discount broker that offers a wide range of financial products and services, including equity, mutual funds, and commodities trading. Zerodha’s platform, Coin, allows investors to invest in mutual funds online. Investors can create SIP on Coin instantly by selecting the mutual fund they want to invest in and specifying the amount and frequency of investment. Zerodha also offers zero commission on mutual fund investments made through its platform.ICICIDIRECT Zerodha Groww

ICICI Direct is a full-service broker that offers a wide range of financial products and services, including equity, mutual funds, and bonds. ICICI Direct’s platform allows investors to invest in mutual funds online through its Mutual Fund SIP Investment facility. Investors can create SIP on ICICI Direct instantly by selecting the mutual fund they want to invest in and specifying the amount and frequency of investment. ICICI Direct also offers a wide range of mutual funds from various fund houses and provides research and analysis tools to help investors make informed investment decisions.ICICIDIRECT Zerodha Groww

Both Zerodha and ICICI Direct offer a convenient and hassle-free way to invest in mutual funds through SIP online. Investors can create SIP instantly and manage their investments from the comfort of their homes or offices. It is important to note that investors should carefully consider their financial goals, risk appetite, and investment horizon before investing in mutual funds through SIP. It is also recommended to do proper research and seek professional advice if necessary before making any investment decisions.ICICIDIRECT Zerodha Groww

Groww is another popular investment app in India that allows investors to create SIP in mutual funds online. Groww offers a user-friendly interface and a wide range of mutual funds from various fund houses. Investors can create SIP on Groww instantly by selecting the mutual fund they want to invest in and specifying the amount and frequency of investment. Groww also offers tools and resources to help investors make informed investment decisions.ICICIDIRECT Zerodha Groww

Groww’s platform also provides features like goal-based investing, tax-saving options, and portfolio tracking. Investors can use Groww’s platform to invest in mutual funds across various categories like equity, debt, hybrid, and international funds.ICICIDIRECT Zerodha Groww

One of the key benefits of using the Groww app is that it offers a simple and hassle-free investment experience. Investors can create SIP instantly and manage their investments from anywhere using the Groww app. Groww also offers zero commission on mutual fund investments, which makes it a cost-effective investment option.ICICIDIRECT Zerodha Groww

However, as with any investment, it is important to carefully consider your financial goals, risk appetite, and investment horizon before investing in mutual funds through SIP. It is recommended to do proper research and seek professional advice if necessary before making any investment decisions.ICICIDIRECT Zerodha Groww

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