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Finance

SIP WAY OF INVESTING

If you are keen on investing in mutual funds and are looking to go about in a structured, well-planned and disciplined way, there is nothing that beats the good-old-fashioned style of investment – Systematic Investment Plan, commonly known as SIP. This article will give you a brief about the SIP way of investing. But, before we dive deep into it, let’s quickly recall what a mutual fund is.

What is a mutual fund?

A mutual fund is a professionally managed investment vehicle wherein an AMC (Asset Management Company) or a fund house pools the funds of numerous investors and invests it in varying securities such as equities, fixed-income securities, money market instruments, etc. according to the fund’s objectives. When it comes to investing, an investor can choose to invest in mutual funds either via a systematic method – SIP or in one go – lumpsum investment.

What is an SIP?

SIP is an investment vehicle wherein an investor can invest a particular amount in their desired mutual fund scheme at predefined periodic intervals for a defined period of time. The specified investment amount gets regularly debited from the investor’s account and is credited into the fund’s account. An investor can invest as low as Rs 100 in a mutual fund scheme via SIP investment.

SIP allows to automate savings and further invest in mutual funds to attain different financial objectives and goals. The habit of SIP allows an investor to constantly invest in equity or debt instruments, irrespective of whether the market is moving upside or downside. Thus, some people also refer to SIP as the good EMI. Let’s realise why SIPs are regarded to ass the good EMI:

  1. SIPs inculcate a sense of financial discipline among investors. In the quest to commit regularly to save and further invest, each SIP investment brings you one step closer to your aspirations and goals.
  2. SIPs provide significant returns due to the power of compounding, also referred to as the eighth wonder of the world. Compounding guarantees that your returns are able to earn further returns on them, making your investment grow at a rapid pace.
  3. SIPs also ensure that an investor doesn’t has to time the market to make considerable returns on investments. This is because SIP inevitably purchases extra units of the scheme when the markets are low, and vice versa. This concept is popularly known as rupee cost averaging, and it diminishes the total cost of the mutual fund investment.

The power of SIP is huge. SIPs aid to invest in a timely manner without having the investor to fret about the market volatility and dynamics. The SIP mode of concept of widely follows the concept of – “Little drops of water make the mighty ocean”. Keep in mind that you can also anticipate the probable returns on your SIP investments using an SIP calculator. A mutual funds SIP calculator can also help you to understand the investment amount required to meet your future financial goals. Happy investing!

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