In India, investors choose SIPs to invest in different types of mutual funds. The number of SIP accounts in the country is increasing at a rapid rate. SIPs are extremely beneficial for beginners who want to invest small amounts without too much risk.
SIPs can make investors more disciplined and create regular investment habits. But what is SIP investment? Dive into this article to uncover the basics of SIP investments.
Understanding SIP Investments
Systematic Investment Plans enable you to invest a fixed amount in mutual funds periodically. SIP makes it easy for investors to achieve their financial goals by investing in debt and equity funds. It is particularly beneficial for investors who want to invest in stocks but lack substantial capital.
In an SIP scheme, you can begin by investing R.s 500 in the stock market every month. If you continue this investment habit for years, you can generate adequate wealth to fulfil your medium-term and long-term financial goals.
You can also choose the lump sum method to invest in mutual funds. But it will require you to invest in a fund of your choice at a time. The lump sum investment method is only suitable when you have substantial capital and a detailed understanding of price movements and market trends.
Benefits of SIP Investments
The SIP method of investment comes with the following benefits:
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Rupee Cost Averaging
SIP investments can average your investment costs. The markets continue to move from bullish to bearish. When the markets are bearish, SIP investments will ensure that more units are allotted to you. But as the markets go up, you will have a lesser number of units allotted for your investments.
So, investors are buying more when markets are down and buying less when markets are up. It helps in averaging your cost. Due to the rupee cost averaging, market cycle changes provide you with an opportunity to earn optimal returns.
In the long run, it will help you create massive wealth in your investments. Therefore, investing in an SIP eliminates the need to time the market because the cost is automatically averaged out.
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Power of Compounding
The power of compounding ensures that you get returns on your investments as well as your profits. It ensures that you can generate a good amount of wealth over time.
For instance, you have invested Rs. 1 lakh in a mutual fund in a financial year. If it offers a return of 20%, your overall amount at the end of the year will be Rs 1 lakh 20 thousand. The power of compounding will ensure that you get returns on Rs. 1 lakh 20 thousand and not just Rs 1 lakh after a period of two years.
Conclusion
SIP investments have become an extremely popular investment choice in recent years. The best part is that you can start your SIP investment any time you want because of the lower capital requirements. Additionally, SIP investments will ensure that a fund manager is present to manage your portfolio without creating any financial stress on you.
FAQs:
- What is the lock-in period for SIP investments?
SIP investments have a lock-in period of 3 years. But in SIP investing, the lock-in period is not calculated from the date of the SIP registration. Instead, it is calculated separately for each instalment.
- What happens if I stop making SIP payments?
Cancelling your SIP will mean that you don’t have to make investments in the future. But the already invested amount will continue to remain invested. You will be able to withdraw the already-invested amount through your mutual fund dashboard.
- Are returns from SIP investments guaranteed?
Mutual funds invest in multiple securities in different proportions. Therefore, there is no guarantee regarding the returns from SIP investments.
- Is PPF better than SIP?
A PPF is suitable for long-term investments of up to 15 years or more. But SIP investments in mutual funds are suitable for short-term, medium-term, as well as long-term goals.
- Which date is ideal for making SIP payments?
The date of payment does not influence SIP returns. Therefore, you can choose any date for SIP payments according to your convenience.
Disclaimer– Mutual Fund investments are subject to market risks; read all scheme-related documents carefully.
