SIP Full-Form?
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Systematic Investment Plan (SIP)
What is SIP?
A “systematic Investment Plan” (SIP) is a method of investing in mutual funds, in which an investor chooses a mutual fund scheme and invests a fixed amount of his choice at fixed intervals.
How Does SIP Work?
Once you apply for one or more SIP schemes, the amount is automatically debited from your bank account and invested in mutual funds purchased by you at predetermined time intervals. At the end of the day, you will be allotted units of the mutual fund based on the NAV of the mutual fund.
With every investment in a SIP plan in India, additional units are added to your account based on the market rate. With every investment, the amount to be reinvested is larger and hence the return on those investments.
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It is at the discretion of the investor to receive returns at the end of the tenure of the SIP or at periodic intervals.
Let us understand with an example. Suppose you want to invest in mutual funds and you have set an amount of Rs 1 lakh to invest in the same.
Now there are two ways in which you can make this investment. Either you can make a lump-sum payment of Rs 1 lakh in mutual funds, also known as lump sum investment. Or you can choose to invest through a Systematic Investment Plan or SIP.
You have to start a SIP of a specified amount. Rs 100 or else Rs 100 will be deducted from your account for the mutual fund you wish to invest in on a certain specified date every month. This time will continue for the duration of your choice.
Types of SIP (Systematic Investment Plan)
You will find many plans in SIP, now you can easily determine which one is better for you.
Top-Up SIP
This SIP allows you to increase your investment amount over time, giving you the flexibility to make higher investments when you have a higher income or the amount available to invest. It helps in maximizing investment by investing in the best and high-performing funds at regular intervals.
Flexible SIP
As the name suggests, this SIP plan has the flexibility of the amount that you want to invest. An investor can increase or decrease the amount to be invested as per his cash flow needs or preferences.
Perpetual
This SIP plan allows you to take on investments without the mandate date. Generally, a SIP carries on the expiry date after 1 year, 3 years or 5 years of investment. Hence, the investor can withdraw the invested amount as per his wish or as per his financial goals.
Benefits of SIP
There are many benefits of investing in SIP on Lips. Some of them are listed below
Makes you a disciplined investor:
If you do not have a better financial knowledge of the market movements, then SIP can be the best investment option for you. You don’t need to spend your time analyzing the market movements or the right time to invest. Since SIP money is auto-deducted from your account and goes into your mutual funds, you can sit back and relax. Also, unlike lump-sum investing, it ensures that you are actively working to grow your investments due to periodicity.
Rs. Cost Average Factor:
With SIP comes the benefit of cost averaging of Rs. Your investment amount is stable since SIP, for the long term, with rupee cost averaging allows you to take advantage of market volatility. The fixed amount you invest through Systematic Investment Plan averages out the value of each unit. So you can buy more units when the market is low and buy fewer units when the market is high, lowering your average cost per unit.
Power of Compounding:
SIP is a disciplined way of investing and it ensures that you make consistent efforts to grow your investments. Automation ensures that your investment grows, unlike lumpsum where you may forget to invest for a while. The small amount you invest adds up to a large corpus due to the amount of your contribution and the returns accumulated over the years.
Also read: How To Download HDFC Bank Statement Online?
View estimated returns using the Growth SIP calculator to see how much your money grows over 20 years. If you contribute Rs.1000 per month, an average return of 10% is achieved.
Due to the compounding effect, the total amount comes to Rs 7,18,259.
Ease of use: As discussed earlier, with a Systematic Investment Plan you can make your investment comfortable. Just by submitting an application form you can start auto-debit or submit post-dated cheques to start sip. And your SIP will be auto-debited from your account on time.
Best SIP Plan
I can’t tell this because I can’t tell this, not only me, because it is determined on the market, if today this plan is the best tomorrow the market goes down, then you go to it only after seeing the best and first Don’t go for five plan.
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Best Platform for Invest In SIP
Platform means the way to invest, everyone is the best and no one will tell you about the guaranteed benefits. The best would be the one which is ‘Safe & Free of Cost’, in my view there are some best, through which you can do SIP investment sitting at home for free, neither any deposit charge nor withdrawal charge.
- Groww App
- Upstocks
- Zerodha
- Angel Broking
Apart from this, there are many more, but I use them personally, so I have told you about them.
