What is Systematic Investment Plan (SIP) Mutual Fund?

For a lot of us who may be just starting to invest or look at different kinds of investments, SIPs Investment plans could sound like a good idea. If you have heard about the rise and fall of the market and how you could lose all your money, the idea or a regular investment that could give your regular returns does sound soothing. Here’s all you need to know about SIP Mutual Funds.

SIPs allow you to invest a small amount regularly. This could be quarterly or monthly or even weekly basis. It helps you cultivate a habit to save regularly and build towards you future. An SIP links your bank account and auto debits the money you plan to invest from your back account. Every time you add money, the scheme purchases a number of units based on the market rate. Over a period of time, the units are purchased at different rates and you can benefit from the Rupee-cost Averaging and the compounded interest on your investment.

What is Rupee Cost Averaging?

Instead of waiting to find a right time to invest in the market, with an SIP you can begin investing immediately and the changing market trend will decide if you purchase more units at a lesser price or fewer ones at a higher price. When the market seems to volatile you could achieve a lower average cost per unit than your actual investment.

Compounded interest?

Most of us are familiar with this term in the context of loans. With investments, you gain the compounded interest. Therefore, the sooner you begin investing the more time your money has to multiply. Simply put, compound interest helps you gain an interest even on the money you received as an interest the previous year, therefore multiplying it. As your base amount keeps on increasing, the compounded interest on the same increases too!

Why should you invest in SIP?

  • Start small:

An SIP allows you to begin investment at a young age and even with a small amount. You don’t need to worry about collecting a large sum of money before investing it in mutual funds or shares or fixed deposits. SIPs allow you to begin investing immediately

  • Compounded interest

As explained earlier, the sooner you invest the more returns you would receive at the end due to the compounded interest. Even if your initial investment was small, the compounded interest would ensure gains.

  • Flexibility

While investing for a long term can promise you higher returns, you can invest at anytime and for a short period of time too. Over the years as you earn more, you could increase the amount, or decrease it in case you plan to invest your money somewhere else.

  • Discipline

Having a systematic investment plan helps you to discipline yourself to save a particular amount at the end of every month, therefore, you will automatically learn to budget your expenses and keep a check on them as well. Once you know you money could help you make more money, why would you invest in something that could be lying around in your room for the next 3 years.

Since the amount can be auto debited from your bank, investing in a SIP mutual fund will be super easy! You don’t have to worry about missing the date or having to travel to pay every month or week. It also saves you from the pressure of investing a huge sum since you can just invest a small amount that could add up to a bigger one at the end of the year.

Summary: Understand SIPs and how they work. For someone just beginning to invest, SIPs could be a perfect solution for various reasons.