What is SIP and how to invest in it?

A large part of the Indian society is made up of middle class people – this part of the society keeps a large part of its income in the form of savings so that the future can be secured.

This saving can be short term or long term according to the need. Some people make their savings in the bank, so those who can take the risk do not hold back from investing in the stock market as well.

Saving is incomplete until that money is not invested in the right place. Money invested in the right place grows over time and keeps your future safe.

Most of the people are unaware that what is there in the market where they can invest their hard earned money safely.

At present, SIP is one such method which can give good return on your invested amount. Let us know a little more about this scheme.

What are SIPs?

SIP stands for Systematic Investment Plan i.e. Systematic Investment Plan – It is a way to invest systematically or systematically in Mutual Funds.

Under the investment plan, you continuously invest in a Fixed Installment Mutual Fund every month. In simple words, it is like a Recurring Deposit Scheme being deposited in the bank.

Under this, you deposit a certain amount in the Mutual Fund of your favorite company at regular intervals.

In SIP Investment, your Bank Account is linked to the SIP Scheme of the Mutual Fund and that money is transferred from your Bank Account to the SIP Scheme on the fixed date of every month.

In this way, it is an authorized way of investing so that your investing becomes a habit and you do not have to think about it again and again.

For example, if you invest Rs.2000 in SBI’s SIP scheme, then every month Rs. 2000 rupees will be deducted and will be invested in SBI Mutual Fund.

SIP Investment is one way to invest in Mutual Funds. You can invest in Mutual Funds either through Lump Sum method or through SIP.

In Lump Sum Investing, you have to decide when to invest, how much to invest and which mutual fund to invest in, and market conditions have to be taken care of in this regard.

Whereas in SIP, you keep investing a fixed amount continuously, which reduces your risk in the long term.

1 What are the benefits of investing in SIP?

1. Investing Small Amount:

In a middle class family, it is easy to withdraw a small amount to save. SIP investment starts with a small amount.

Small amounts withdrawn at regular intervals give good returns if invested over a long period of time. You can start investing in SIP from Rs 500 per month, which can give you good returns with less risk in the long term.

2. Simple Way of Saving:

Saving through SIP is a very simple solution.

When you invest in it, every month on a certain date, the Mutual Fund withdraws the prescribed amount from your respective bank account and deposits it in the SIP plan.

In this way you can easily make your investment without any hassle.

3. Withdrawing money from SIP:

There is no lock in period in most of the SIP schemes. Investors decide whether to continue or stop investing in SIP according to their need and goal.

This gives the investor good returns as well as advanced liquidity facility.

4. Power of Compounding

Compounding means getting interest on interest. When investment is made in SIP, whatever return is received – it is re-invested back, which increases the returns of the investor.

5. Rupee-Cost Averaging :

By investing in SIP, you are free from the volatility of the market. With SIP, investments are made every month or at a fixed interval, when the market is down, you buy more units of the mutual fund, and when there is a boom, you get less units.

Thus, in the long term, the market volatility does not affect the average price of your Mutual Fund units. By investing in this scheme, you reduce your risk on your investment in the long term and you get good returns.

6. Systematic Investment:

In SIP investment, a small amount is regularly withdrawn from your account and invested. This maintains a discipline and order in your investment process.

7. Low Risk :

The investment of SIP is less. The main reason for this is that by not investing Lumpsum amount, but investing in small amount reduces the risk in the long term.

8. Tax Exemption:

When you invest in SIP, there is no tax on the amount invested or withdrawal of the Invested Amount.

But the capital gain on this investment is taken out on the basis of the initial time of investment.

Also check out these investment guides:

2 Risks and returns of SIP

SIP is a mutual fund investment in a way and the “Return” and “Risk” received on investment in mutual funds depends on the objective of the scheme, market and various circumstances.

Example: For example you choose Equity Scheme and start investing 500 rupees in it every month.

  • Auto Sweep Facility (9% Interest on Saving Account)

Now every month Rs 500 will be deducted from your bank account and in return you will get units of SBI Equity Scheme of the market value of that time.

Your money reaches the Mutual Fund and the fund manager of the Mutual Fund will invest this money in the equity market based on their experience and the purpose of the plan.

In this way, you have indirectly invested money in the equity market and both its risk and return will depend on the conditions of the equity market and the decisions of the Funds Manager.

3 How does SIP work?

Before investing in SIP, it is important to understand its process, it can be understood as follows –

Step I – Choose Righ Mutual Fund

There are many Mutual Funds and their SIP schemes available in the market.

Risk and return are two important things in any investment and the best investment is the one where you get more returns with less risk.

Different mutual funds have different schemes according to investment objectives and each mutual fund invests in its own way.

So you have to first determine your objective that what you are investing for and for how long.

After that the right scheme will have to be chosen from the various Mutual Fund Schemes present in the market.

Step II – SIP Account & KYC

If you want to invest in this scheme, then you have to open a SIP Investment Account – for this you will have to submit Basic KYC Documents.

Step III – Planning

When your SIP account is opened, you have to determine the amount you want to invest. Along with this, in which time period you have to invest this amount, it will also have to be determined.

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