SIP stands for Systematic Investment Plan in its full form.
SIP is a type of mutual fund investment that allows us to invest a set quantity of money over time.
The Indian public’s conventional thinking is that they either keep their money or spend it; only a small percentage of individuals consider investing. A lack of information and technology could be the cause. The time has changed, and we can now learn about it by watching YouTube videos on our phones.
Patience and consistency are the two primary variables that contribute to a higher SIP return. You must first research and select a decent stock before investing in SIP. You must then invest consistently for the long run and maintain patience for at least 5-6 years.
Purpose of SIP
In comparison to post offices and banks, SIP offers higher returns with lower risk.
How to start SIP?
- You must first complete KYC by submitting documentation (identification, address, passport size photo, and cancelled check).
- Finally, with the help of KYC, you must open an account with Fund House, either online or offline.
- Then, you have to select a scheme and fill in all the details:
- Budget – How much of the amount do you want to invest?
- Frequency – You get different options to deposit your money (Quarterly, monthly, or annually).
- Term plan – For how long you will invest in SIP.
- Your money will be debited automatically from your bank account and deposited into the SIP portfolio, and your investment starts now.
Advantages of SIP
- Affordability We can begin with only Rs. 500 each month.
- Adaptability We have complete freedom to cancel or pause at any time.
Disadvantages of SIP
- Rather than providing superior service, many mutual fund businesses focus on gaining consumers through marketing and promotion.
- Because investment transactions are dependent on the investor (who can withdraw money at any time), mutual fund managers are unable to function independently.
- Because the schemes are limited to mid-cap companies, the returns are poor.
Key Factor of SIP
Financial Discipline – Everything is handled by experts only, so we need to have faith in them and keep patience for the long term.
Rupee cost averaging – When the NAV of the scheme of any mutual fund company is high, then a few units are allowed at the same price and vice-versa. Thus the total average cost gets decreased as the installment of SIP gets increased.
Benefits of compounding – It gives profit by growing over the long term (return on the return).
- SIP is the simplest and safest way of entering into the share market and generating good income.
- There are numerous online brokers in the market that offer investment platforms, including Zerodha, HDFC Securities, ICICIDirect, Kotak Securities, AxisDirect, Reliance Securities, and many others.