SIP Investment Demystified: Building Wealth Through Systematic Contributions
Author : Bhavna lok | Published On : 19 Dec 2023
SIP investment refers to a disciplined approach to investing money. Under the systematic investment plan, investors may make an unvarying payment each month to a particular mutual fund.
It helps in the utilisation of a rupee cost-averaging strategy. This method capitalises on market fluctuations by enabling the purchase of a greater number of units when prices are lower and fewer units when prices are higher.
As a result, it potentially mitigates the impact of market volatility on overall investment returns. Through this, people are offered a chance to venture into financial markets with little investment, thereby cultivating a culture of financial self-discipline and long-term wealth creation. Let us thoroughly discuss what is sip and the various aspects that make it appealing to investors.
How to invest in SIP in India?
1. Research and Goal Setting: Start with your investment objectives and risk appetite. Consider fund performance, historical returns, and fund manager reputation among other parameters before choosing any mutual fund, by your goals.
2. Choose a Fund: Choose the fund which fits into the investment objectives and matches the ability to take risks. Take into consideration factors like fund category, past performance, fees charged, and also how well the managers have done.
3. KYC Compliance: Finish your KYC prerequisites with a fund house. For compliance with regulatory authorities, this involves presenting proof of identity and address.
4. Select SIP Amount and Frequency: Determine the monthly SIP subscription for your account. You decide on a period, typically monthly, in which you pay your SIP contributions. This will require that a particular sum of money get deducted directly from your bank account automatically.
5. Submit Application Form: Download and fill in the mutual fund house’s systematic investment plan application form. Provide all required attachments including a cancelled cheque for the bank details and KYC documents.
6. Bank Mandate: Give an approval form for a standing instruction that will allow your preselected systematic investment plan amount to be debited from your bank. This will allow prompt and convenient payments.
Features of SIP investment
To know what sip is, we need to first know its features. Some of the notable features of systematic plan investment are:
1. Regular investment: In the systematic investment plan, investors may invest money within regular time intervals. This further gives a disciplined approach towards investing.
2. Small investment: In a systematic investment plan, we do not need to invest a large sum of money at the beginning. It may be started with a small amount of money and that's what makes it so accessible to the people.
3. Flexibility: The options the systematic investment plan offers are quite flexible. Investors may choose the amount, investment frequency and mutual fund scheme at their convenience.
Benefits of investment in SIPs
1. Regular Investing: SIPs allow one to invest a specific amount systematically and consistently which helps in the development of responsible behaviour.
2. Rupee Cost Averaging: systematic investment plans aim at levelling market fluctuations by buying more shares during price drops and fewer shares during increased prices.
3. Compounding Returns: systematic investment plans may also help in potential returns due to the concept of compounding, as your money may get potential returns on the principal amount already received in the past, which may result in potential stable returns in the future.
4. Flexibility: In a systematic investment plan, an investor may choose the amount to be invested every time depending on his available budget.
5. Risk Mitigation: Consistent investment of a predetermined sum spreads out the investment over various market conditions and smooths out adverse influences that may happen due to minor short-term fluctuations.
Hence, these benefits of a systematic investment plan will help us know what is sip in a better way.
Wrapping up
We may say that a systematic investment plan is an open and helpful path for saving/wealth accumulation. They de-mystify financial markets and allow people to potentially grow their wealth through savings. These are truly forms of systematic investment plans that involve several disciplines over time.
The approach goes a long way in building a solid foundation for the accumulation of wealth in the future. The systematic investment plan is one of the most flexible options for investors because they may choose from a wide range depending on risk tolerance level and personal objectives.
Disclaimer: Mutual fund investments are subject to market risks, read all scheme related documents carefully.
