People’s growing eagerness to save and invest has created a new sort of fad. Friends and family regularly seem to announce their financial acquisitions like investing in SIPs, purchasing NFTs, and so on. Those who haven’t chosen an investment instrument yet may feel a little left out. Fortunately for them, investing in mutual funds through SIPs has never been easier!
Understanding Systematic Investment Plans (SIPs)
Here’s a common misconception – People tend to use Mutual Funds and SIPs interchangeably or confuse them for a product or scheme of Mutual Funds.
This couldn’t be further from reality. SIPs are a medium offered by Mutual Funds through which investors can invest a fixed sum at regular intervals of their preference. You can opt to invest in SIPs on a weekly, monthly, quarterly, bi-annual or annual basis. All it takes is as little as ₹ 500 to start a SIP right away.
There are a variety of SIPs you can choose from, depending on your financial objectives.
1. Top-Up SIP:
Investors can increase the amount of the SIP at pre-determined intervals as their financial conditions improve throughout the tenure
2. Flexible SIP:
Flexi or Flex SIPs allow investors to modify the amount invested into SIP instalments, due to changes in their finances or market fluctuations
3. Trigger SIP:
Advanced investors can set their SIP dates for market events like favourable market movements, capital appreciation or depreciation, etc.
4. Multi SIP:
Ideal for building a diverse portfolio, it enables investors to invest in multiple schemes of a fund house through a single instrument.
5. Perpetual SIP:
An investor can choose to continue with their SIP indefinitely without setting an end date for the investment tenure.
Perks of Picking SIPs
1. Benefits of Compounding Interest
Throughout the tenure, the monthly returns earned from the SIP will be reinvested back into the investment until maturity. This ensures the steady growth of your investment capital. Furthermore, if you invest for a longer duration, you can dodge the impact of market fluctuations.
2. Reduced Security Specific Risks
You can easily diversify your portfolio across different asset classes or industries. This will aid in reducing the influence of sudden mark crashes. Likewise, it increases your chances of earning higher returns by investing in a diverse range of sectors.
3. Convenience of Automated Investments
A great way to follow a healthy fiscal routine is by investing a portion of your income in SIPs. Since the SIP payments are automated, you can easily begin the endeavour to multiply your savings. This essentially helps you set a specific date on which the recurring SIP instalment will be paid.
4. Skippable Installments
Low on savings? Skip out on the SIP instalment for that month! Unlike a Fixed or Recurring Deposit, you skip out on paying the instalment without any extra charges. You can come back later to resume your investment
5. Easy To Opt Out Of
Contrasting traditional investment instruments, SIPs can be stopped at any point without any further penalties or foreclosure charges. Just go to your Demat Account and opt out of the selected plan.
Also Read: The Power of Compounding
How To Start Investing?
Step 1: Set Your Investment Objectives
After researching the type of Mutual Funds you would like to invest in, start aligning them with your financial goals.
Step 2: Deduce Your Risk Appetite
Before going ahead with investing in different schemes, evaluate your risk appetite. You can choose between various funds to suit your goals of acquiring moderate or high returns.
Step 3: SIP or Lump-Sum Payments
If you have the funds available, or just received a big bonus, use it as a lump-sum investment for your SIP. However, those low on income can easily start a SIP with INR 500 or more, at periodic intervals of their choosing.
Step 4: Begin With Your KYC
Depending on the financial institution, follow KYC mandates and provide them with the necessary documents.
So, don’t let your savings sit idle, start planning on investing in a SIP today!