What is SIP & How does it Work?

Are you looking to invest your money wisely and steadily grow your wealth over time? Then, it’s time to learn about SIP. A systematic Investment Plan is a straightforward yet effective way to invest in mutual funds. It involves regularly investing a fixed amount in chosen mutual funds. Additionally, it comes with many benefits that can help you achieve your financial goals. Such as disciplined investing and the potential for higher returns over time. It provides an accessible and structured approach to growing your wealth while minimising the impact of market volatility. In this article, let’s explore SIP in detail.

What Is SIP Investment?

A Systematic Investment Plan is a way to invest in mutual funds where you pick a mutual fund you like and then put in a fixed amount of money at regular intervals.

It is all about investing a little bit of money over time instead of putting in a large sum of money all at once. This way, it can potentially lead to higher returns in the long run.

How Does A Systematic Investment Plan Work?

Once you apply for one or more plans, the money you want to invest is automatically taken from your bank account and used to buy mutual fund units at your chosen set intervals.

At the end of each day, you’ll get some units of mutual funds based on their current price, known as the NAV. Every time you invest in a plan in India, you get more units based on the market rate. This means you’re putting in a bit more money with each investment, which can lead to higher returns in the long run.

It’s up to you as the investor to decide whether you want to get your returns at the end of the Systematic Investment Plan duration or regular intervals.

When To Invest?

You can invest in investments at any time. Plus, it’s a good way to minimize risks when you pick the right plan that matches your needs.

What’s crucial is selecting a scheme that aligns with your long-term goals. So, there’s no specific “perfect” time to start an investment plan; the sooner you begin, the better it is for you

Types

Understanding the different types of Systematic Investment Plans can help you pick the right one for your goals. Here are the kinds of Systematic Investment Plans available:

Top-up

Top-up lets you increase the amount you invest over time, giving you the flexibility to invest more when you have extra income or funds available. It’s a way to make the most of your investments by putting money into the best-performing funds at regular intervals.

Flexible

As the name suggests, it allows you to adjust the amount you want to invest. You can increase or decrease your investment based on your cash flow needs or preferences.

Perpetual

A perpetual SIP plan lets you continue investing without any set end date. Usually, regular SIPs have a fixed end date like 1 year, 3 years, or 5 years. But with perpetual SIP, you can keep investing as long as you want or until you reach your financial goals.

Benefits

There are several benefits of SIP. The following are the benefits:

Helps You Stay Disciplined As An Investor

It can be a great choice for you, especially if you don’t understand how the financial market works. You won’t need to spend your time trying to figure out when it’s the best time to invest or analyse market trends.

With SIP, your money is automatically taken from your account and invested in mutual funds. This means you can simply relax and let your investments grow without having to actively manage them. Unlike one-time investments, SIP keeps you on track by making regular contributions.

Rupee Cost Averaging 

SIP also offers a benefit called rupee cost averaging. Since your investment amount remains the same for a longer period, you can make the most of market ups and downs. Your fixed amount helps you buy more units when the market is down and fewer units when it’s up. This way, it evens out the cost of each unit you buy.

Power Of Compounding

This is a structured method of investing that encourages you to keep working on growing your investments. Your investments keep growing consistently, unlike lump sum investments, where you sometimes forget to invest. 

The small amount you put in regularly adds up over time, thanks to your contributions and the returns that pile up as the years go by. This can eventually turn into a significant sum of money.

Conclusion

SIPs are like a smart way to grow your money. A Systematic Investment Plan is a way to invest in mutual funds where an investor selects a specific mutual fund scheme and regularly invests a predetermined amount at fixed intervals. They help you save regularly and make your small contributions add up to big savings over time. If you want a safe and organised way to build your wealth, they are a great choice. Start early, pick a plan that matches your big-money goals, and you’re on the right track. And if you’re thinking of trying out investment plans, Share India is a trusted place where you can find lots of investment options and get advice from experts

Frequently Asked Questions (FAQs)