The investment acumen of Indians has significantly evolved over the last two decades. While, their primary preference has always centered around traditional instruments; today people, have also become more open to Mutual Fund investment. Several individuals invest in Mutual Funds through SIPs, but a lot many are confused as to how to go about it. So, here’s a quick guide to SIPs and how you can use them to create wealth over a long period to achieve your long-term financial goals.
- What is an SIP?
An SIP or a Systematic Investment Plan is a smart and hassle free mode for investing money in mutual funds. It allows an investor to invest a fixed amount regularly in a mutual fund scheme, typically an equity mutual fund scheme. A SIP will enable one to build over time by investing small sums of money periodically. SIP investment is a good way for Mutual funds investment. Why so? Here is the answer.
- How does it work?
An SIP serves as a flexible and easy way to plan your money. Below is the step by step explanation of how an SIP works:
- Define the time frame for your investment and your SIP amount.
- Your money is auto-debited from your bank account and invested into a specific mutual fund scheme. You are allocated certain number of units based on the ongoing market rate (called NAV or net asset value) for the day.
- Every time you invest in an SIP, additional units of the scheme are purchased at the market rate and added to your account.
Hence, units are bought at different rates and investors benefit from Rupee-Cost Averaging and the Power of Compounding.
- What are the advantages of Investing in a Mutual Fund SIP?
There are many benefits of SIP. Here is the list of advantages of a Mutual Fund SIP
- Averages Your Purchase Cost
A Mutual Fund SIP allows you to average your purchase cost and maximize returns. When you invest in SIP regularly over a period irrespective of the market conditions, you would get more units when the market is low and less units when the market is high. This averages out the purchase cost of your mutual fund units.
- Customise Your SIP
Investors can customize the way they put money via SIPs. Many fund houses allow investors to invest in SIP on a monthly, bi-monthly and fort-nightly basis, according to their convenience.
- Invest with As Less a Rs. 500
SIP investment have proved to be an ideal mode of investment for retail investors who do not have the resources to pursue active investments. People who wish to invest in an SIP, can start with as less as Rs. 500.
- Power of Compounding
Often called as 8th wonder of the world – the power of compounding has the power to help you to build a large corpus to achieve your long-term financial goals with regular small investments and SIPs properly leverage this power. When you invest in an SIP over a long period and earn returns on the returns earned by your investment, your money would start compounding by Mutual fund SIP investments.