There are 2 kinds of people in this world. Those who invest in a Systematic Investment Plan (SIP) and those who don’t. It is quite possible that in the past few years, you have heard of the term SIP from your friends, colleagues or investment advisors.
Do you know what exactly is meant by a Systematic Investment Plan?
Do you know what the advantages and disadvantages of investing in a Systematic Investment Plan are?
This article is your complete guide towards Systematic Investment Plan.
In this article
- How to Invest in a Systematic Investment Plan Online?
- Advantages of a Systematic Investment Plan
- How Can You Start Investing in a Systematic Investment Plan?
How to Invest in a Systematic Investment Plan Online?
1.The scheme should be carefully selected by the investor as per his/her risk-taking ability. There are also tax saving SIPs available which can be chosen by the investor.
2. Once the scheme is chosen, the next thing would be the documentation part. If you are signing up with online platforms like Groww, the process is quite easy:
- You will first have to provide your KYC documents.
- Once done, you will have to fill up the mandate form for auto-debiting of the SIP amount.
The Systematic Investment Plan will get started after the submission and verification of the above documents. All of these documents can be submitted online now through the website/app of the company the investor is investing through.
As you can see here, investing in an SIP is a very simple process. With the advent of online investing, investing in SIP has become convenient.
Advantages of a Systematic Investment Plan
1. Rupee Cost Averaging
This is one of the major benefits of investing in a Systematic Investment Plan.
SIP gives the investor the benefit of buying more units when the price is low and buying less units when the price is high This averages out the investment.
2.Regular & Disciplined Investing
SIP makes the investor invest a fixed sum regularly in a disciplined manner.
As the sum is deducted automatically from the bank account of the investor, the investor does not need to worry about anything else.
As SIP requires small amounts of money to be invested at regular intervals, it automatically reduces the risk factor of the investor.
So, when the market in not in a favourable state the losses are also reduced as compared to the loss which the investor might have incurred if they had invested a big amount.
One of the most beneficial factors of investing in an SIP is the compounding of investment. For example, a monthly SIP of ₹1000 over 30 years with an annual return of 12%, can yield a sum as high as ₹ 30 lacs.
Whereas, the same investment done for 25 years would yield Rs. 16.8 lacs. The difference between the yields of these two investments is Rs. 13.2 lacs. This is because of the compounding factor of an SIP.
How Can You Start Investing in a Systematic Investment Plan?
These are the 4 things to keep in mind, before you start investing in an SIP.
1. Have a Financial Goal
The first thing for an investor to start a Systematic Investment Plan is to set financial goals. The financial goals or objectives should be clearly defined to start investing.
2. Duration of Investment
After setting an attainable goal, the investor should decide upon the timeline of investment. This will depend on the goals of the investor, when money is needed. That should help the investor decide the tenure of investment.
3. Amount to Invest
The investor should then decide the amount to be invested regularly to achieve those goals. The amount should be clearly thought out from the savings which the investor can take out from their income.
4. Selecting the Fund
The next step would be to select a fund to invest in. The investor should select a plan which meets his/her requirements. If you have added a mandate or biller, the money will be auto-debited from your account.
Investing in a Systematic Investment Plan is one of the best investment decisions that you should take.
Benefits of an SIP more than compensate for the limited disadvantages it has. The benefits of compounding, rupee cost averaging and disciplined investing cannot be stressed on enough.
The earlier you understand this concept and start investing, greater the corpus you can create at the end of your investment period.
As soon as you have some surplus, it makes a lot of sense, to start investing in a Systematic Investment Plan. The amount can be as low as ₹500/₹1000.
However, it is important to understand that investing involves risk. One must invest according to their risk-appetite and investment goals.
Disclaimer: The views expressed in this post are that of the author and not those of Groww.
Investment in securities market are subject to market risks, read all the related documents carefully before investing. Please read the Risk Disclosure documents carefully before investing in Equity Shares, Derivatives, Mutual fund, and/or other instruments traded on the Stock Exchanges. As investments are subject to market risks and price fluctuation risk, there is no assurance or guarantee that the investment objectives shall be achieved. NBT do not guarantee any assured returns on any investments. Past performance of securities/instruments is not indicative of their future performance.