WHAT IS SIP?
A SIP (Systematic Investment Plan) is a type of investment vehicle which is offered by many mutual funds and offers to invest in small amounts in fixed periods instead of a lumpsum amount. The frequency of investing is usually repetition in a week, month, or quarter. In a SIP Investment, a fixed amount of money is deposited by the investor in a specified SIP mutual fund. The investor is allotted a specified number of units and every time an amount is invested the number of units is increased. These investment plans are very flexible and allow an investor to stop investing at any point in time that they want to. These SIP plans are usually suggested to retail investors who do not have an adequate amount of money.
In India, most of the mutual funds allow many tax benefits under the locking period of three years. If a person invests in a mutual fund they can buy stocks of various companies whereas, in the case of the share market, they can only invest in a particular company.
A FEW POINTS ON SIP
- Systematic Investment Plan is a very small investment that is done at regular intervals of time and enables the investor to invest a fixed amount at a particular frequency. The SIP plans make the mutual funds very reasonable and affordable. In recent times, SIP has become a very popular investment plan for many small investors.
- The main requirement of a SIP plan is a regular investment by the investor but also offers an option of one-time lumpsum investments which are irregular. S IP investments make it a habit for investors to regularly invest.
- SIP helps in setting up a financial budget which includes investing regularly. A fixed amount should be invested regularly which helps the investors to set up their financial budgets beforehand.
- All the mutual funds have a particular portfolio which means when you invest a certain amount, the money gets included in the portfolio which means regular investments aid in buying regularly. This means that instead of buying the whole at a time, one can buy in small amounts in small intervals.
- SIP makes sure that the average investment price is taken care of and it comes out to be lower than the price that the investor paid when the market was at the peak.
- SIP helps in achieving the financial goal of the investor. Therefore, one should stop investing if they have achieved their goal and then resume investing when they have set up a new goal. The SIP investment can always be redeemed whenever necessary.
- The SIP returns are historical but it is not necessary that history may repeat itself. The SIPs do not give a return of 20-30% every year because they are small investments but SIP does not usually yield any negative results.
- The investors who are new in the SIP investments should always take advice and understand which funds will provide benefits for the investor himself.
In the end, investing in best SIP plans is all about the discipline, effort and the time spent on researching. Once, you have learnt and understood these factors, mutual funds can certainly help you reap tremendous profits and help you overcome any financial emergency that might arise in the future.