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What is SIP and How to Invest in SIP?

dateKnowledge Centre Team dateSeptember 23, 2021 views294 Views
What is SIP | How to Invest in SIP | Financial Planning

A systematic approach has always been a powerful tool for achieving goals. Finance, a crucial aspect of one’s life, also needs to be managed in such a way that it helps them in the long term. That’s why many people choose financial investments as a systematic approach towards money management.

You might have heard about people going for investments every then and now, for example - life insurance, mutual fund investments, fixed deposits, etc. Now, as the times are changing, people often look for new and better options. A systematic investment plan is one such kind of financial investment that you can choose to make the best out of a mutual fund. As the name suggests, SIP is a planned investment towards your desired mutual fund for prolonged benefits.

So here’s an ultimate guide to SIP and how to invest in one of them.

What is Systematic Investment Plan?

Commonly referred to as a SIP, a systematic investment plan allows investors to regularly invest a small amount of money in their preferred mutual funds. Unlike other investments, you don’t have to deposit a lump sum amount. Once the investor validates a SIP, a fixed amount of money is regularly deducted from their linked bank account.

Under the SIP plan, one can invest an amount as low as ₹500. The intervals at which the amount is deducted can be weekly, monthly, quarterly, half-yearly, or yearly based on their chosen plan. As SIP plans are pretty flexible in terms of amount and intervals, you don’t need to have a large sum of money to start with.

Further, with SIP, you can better understand the market dynamics and investment scenarios. In this way, a systematic investment plan imbibes a sense of financial discipline for the long run.

Learn more about SIP and its advantages.

Types of Systematic Investment Plans

Currently, most Indian banks and mutual fund providers offer four main types of SIP plans as described below:

1) Top-Up SIP

As the name suggests, Top-Up SIPs let you increase your SIP investment amount after a certain period. For example, if you are currently investing ₹1000 each month, you can choose an increment of ₹500 after every six months making it ₹1500 after 6 months, ₹2000 in another 6 months, and so on.

2) Flexible SIP

A flexible SIP plan lets you control the investment amount according to your cash flow. In this way, you can increase or decrease the current fixed amount even before seven days of the next installment.

3) Perpetual SIP

A perpetual SIP doesn't have a fixed end date of the plan. Thus, it gives you the full right to stop the SIP investment anytime you want.

4) Trigger SIP

Preferred by experienced investors, this SIP plan lets you set a trigger. This trigger automatically redeems itself, allowing you to swap between schemes whenever the market becomes volatile.

Four Reasons to Choose SIP

Apart from the ease of investment and the lowest possible investment amount, several other reasons make it an investment habit.

1) Power to Stop

Unlike insurance, savings plans, or other kinds of investment where you have to wait for a certain period before you can stop, you can stop SIP anytime.

2) Easy To Skip Payment

One of the popular benefits of the SIP is that you can skip the payment for a month (if your plan has a monthly investment option). Yes, you can skip the payment, and in the next month, you can continue the SIP by paying the coupled amount. This feature is quite beneficial as it doesn't allow your investments to stop due to any financial crunch.

3) Safety From Market Dynamics

The SIP provides you with a safety net from the market dynamics. If you invest today and the market is going down, it won't affect your returns. As the SIP calls for investment over a while, the downs and ups of the markets get averaged out.

4) Start New

The SIP also offers you the freedom to run two or more plans in parallel. If you begin with a small investment earlier and now have increased income or resources, you can start a new SIP and set new goals.

How to Invest In a SIP?

Just as the SIP itself, the process to invest in a SIP is simple. Here are the steps that you should follow to make a SIP investment:

1. Search for SIP plans.

2. Choose a mutual fund for your SIP investment that is suitable according to your requirements.

3. Complete the KYC (know your customer). You can do that through various eKYC (i.e., electronic KYC) facilities by mutual fund providers.

4. Fill in the details and upload copies of documents like Aadhar card, Cheque book, PAN card, photograph, etc.

5. Next up, there would be in-person verification for which you need to schedule an appointment.

6. Finalize the SIP plan by selecting the SIP plan’s investment amount, installment dates, and duration.

Finalizing a Plan

As SIP can be a long-term investment, finalizing a SIP plan is primarily influenced by your long-term goals. The goal can be anything from buying a home to going abroad for higher education!

However, If you find yourself uncertain about the amount to be invested for expected returns, there is nothing much to worry about. Many financial websites and banking websites provide SIP calculators to calculate the suitable investment amount effortlessly.

In the SIP calculator, you have to fill in the target amount and the suitable investment period. Then based on a given rate of interest, the calculator would tell you how much you should invest to reach your goal. So, check your returns with a SIP calculator now and invest in SIP.

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