Over the past few years, investing in mutual funds through the Systematic Investment Plan has grown in popularity. This is due to the fact that they let you spread out your risk and amass long-term riches by investing little sums on a regular basis for however long you require. However, it's crucial to understand what a SIP is and how to begin your SIP investment journey before deciding to participate in a SIP mutual fund. By doing this, you'll develop a sound investing habit that will help you manage your risks, invest your money wisely, and eventually reach your financial objectives. In this article, we will discuss further what SIP is and how to get started with it.
What is SIP?
The Systematic Investment Plan, or SIP,
is essentially a method of investing in mutual funds. It is a long-term
investing strategy that typically lasts between 10 and 15 years, and investors
can make sporadic monthly or quarterly investments. The risk factor that
depends on the market is typically there when we invest somewhere. However,
with SIP, no such
risk factor exists. You will receive the specific amount after the term in
exchange for your monthly or quarterly payments, regardless of the state of the
market or any unexpected upswings or downswings.
A SIP is a sum of money
that enables regular, monthly investments over a continuous period of time. An
individual who is investing purchases a specific number of units from a
programme using SIP.
SIPs assist investors in adding discipline to their risk-free investment
approach.
How to invest in SIP online
Your ability to focus
on your SIP and
develop it over time into a discipline will determine how successful it is.
Here are a few guidelines to help a beginner succeed with SIP investments.
● SIP can't be arbitrary. Determine how much money
you need to invest by starting with your aim. A generalisation such as
"stock funds can generate annualised returns of 14% over a longer period
of time" is permissible. Just to give you an idea, with your commitment of
only Rs. 15 lakhs over 25 years, a simple investment of Rs. 5,000 a month in an
equity SIP can grow
to Rs. 1.36 crore.
● Multiple SIPs are acceptable as long as each
one is linked to a specific aim. You must understand the SIP's goal in order to
monitor it along the route and avoid interfering with it.
● The "SIP date" question follows your response to
the "how much" query. To ensure that your bank account is funded, set
the SIP date a few
days after the date of your salary. Put one month's worth of SIP funds aside in your
account as a reserve to be on the safe side.
● The next decision is whether to use a
stepped-up SIP or a
fixed SIP for the
duration of the SIP.
Stepping up is a smart move because it allows you to boost your savings along
with your income. But there's no need to make your computations more difficult.
Maintain your SIPs at their current levels and consider adding more SIPs when
your income rises.
● The choice of equity fund type for SIP is the next step. First, it needs to be a multi-cap or
diversified fund. You can accept the risk of multi-cap funds over a longer time
horizon in exchange for greater rewards. However, sector and thematic funds
must be avoided as they can become overly cyclical and dangerous over time. You
require something more trustworthy.
● Now you need to decide whether you should
choose the dividend option or the SIP with a growth option. Keep in mind that dividend plans
should be avoided because they do not compound wealth and are inefficient tax
structures. Second, choose a Direct Plan if you are disciplined about investing
and comfortable with it. Saving the sales commission has a significant impact
on your costs and earnings.
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