What is SIP?
SIP means a systematic investment plan - it is a way to systematically invest in Mutual Funds. Under the Investment Plan, you continuously invest in a Fixed Installment mutual fund every month. Simply put, it is like a recurring deposit scheme deposited in the bank. Under this, you deposit a certain amount in your favorite company's mutual fund at a regular interval. Your Bank Account in SIP Investment is linked to Mutual Fund's SIP Scheme, and on a fixed date of each month, that money is the transfer from your Bank Account to SIP Scheme. This way, it's an Automated way to invest so that you get used to investing, and you don't have to think about it again and again.
For this, if you invest Rs.2000 in SBI's SIP Scheme, you will be deducted Rs. 2000 from your Bank Account every month and invested in SBI Mutual Fund. SIP Investment is one way to invest in mutual funds. You can invest in mutual funds either in a lump sum or through SIP. You have to decide when to invest in Lump Sum investments, how much to invest, and what mutual fund to invest in and also take care of market conditions in this regard. While in SIP, you constantly invest a certain amount, which reduces your risk in the long term.
What are the advantages of investing in SIP?
1. A small amount of investment:
It is easy to remove small amounts to save in a middle-class family. Sip's investment starts with a small unmount. The small amount generated at regular intervals gives a good return when invested for a long time. In SIP, you can start investing at Rs 500 per month, which can give you good returns in the long term with low risk.
2. A simple way of saving:
Saving through SIP is a straightforward solution. When you invest in it, a fixed date mutual fund deposits the prescribed amount from your attached bank account to the SIP plan every month. Thus you can easily invest without any hassle.
3. Withdraw money from SIP:
There is no lock-in period in most sip schemes. The investor decides to continue or discontinue investment in SIP as per their requirement and goal. This gives investors a good Return as well as Advanced Liquidity facility.
4. Power of Compounding:
Compounding means getting the interest on interest. When invested in SIP, whoever gets a Return is re-invested back, thereby increasing investor returns.
5. Rupee-Cost Averaging:
Invest in SIP frees you from market fluctuations. SIP invests every month, or at certain intervals, when the market is slow, you buy more units of Mutual Fund, and you get fewer units when it's faster. Thus, the average price of your Mutual Fund Units in Long Term does not affect market volatility. Investing in this scheme reduces your investment risk in Long Term and gives you a good return.
6. Systematic Investment:
Sip investments are invested regularly by withdrawing small amounts from your Account. This keeps discipline and order in your investment process.
7. Low risk:
SIP's investment is low. The most reason for this is that you reduce risk over a long period by not investing lump-sum amounts, but by investing in small amounts.
8. Tax Exemption:
When you invest in SIP, there is no tax on investing the amount or withdrawing the Invested Amount. But the Capital Gain on this investment is removed based on the initial time of investment.
Risks and return on SIP:
SIP is a type of Mutual Fund Investment and depends on the objectives, markets, and different circumstances of the "Return" and "Risk" schemes on investment in mutual funds.
How SIP works:
It is important to understand its process before investing in SIP, which can be understood in this way –
Choose Righ Mutual Fund:
There are a lot of Mutual Funds and sip schemes available in the market. Risk and Return are two important things in any investment, and the best investment is where there is more Return in less Risk. Different mutual funds have different schemes as per investment objectives, and each Mutual Fund invests in its own way. So you must first set your objective as to what you are investing for and how long you have been investing. Then choose the right scheme from the various Mutual Fund Schemes in the market.
SIP account and KYC:
If you want to invest in this scheme, you need to open a SIP Investment Account – you need to submit Basic KYC Documents.
SIP planning:
When your SIP Account opens, you'll need to determine the amount you need to invest. At the same time, you have to determine how many periods you have to invest this amount.
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