How to start a SIP investment?
For the uninitiated, SIP is the short form of Systematic Investment Plan. It is a great way to save money in order to achieve your financial goals. You can invest as little as Rs.500 in SIP investment at regular intervals, such as weekly, quarterly or monthly .You can also give instructions to increase or decrease the value of your monthly installment or even start and stop at some intervals.
What is SIP?
SIP is a systematic investment plan that enables you to invest in mutual fund schemes. You can choose a mutual fund scheme of your choice and decide to invest a certain fixed amount at fixed intervals. Interestingly, SIP allows you to invest in a mutual fund scheme through small installments instead of a lumpsum amount.
How does SIP work?
The best example to understand SIP is your piggy bank. A child keeps adding money in his piggy bank and over time he is able to collect a handsome amount. Similarly, in SIP investment, you deposit a fixed amount of money which could be as low as Rs.500 or as high as you can afford to. However, unlike a piggy bank, SIP investment invests the money in shares, stocks, securities, etc and also gives you profitable returns.
Why should you invest in SIP?
SIP offers several benefits compared to lumpsum investment. Have a look at a few of the benefits. Compounding This is a powerful method in which your investments through SIP are added back to your investment amount. This increases the value of your investment. Over time, the total value of your investment keeps increasing and helps in better growth. Rupee Cost Averaging This is one of the main advantages of SIP investment Plan. In rupee cost averaging, you invest a fixed amount of money at regular intervals regardless of the market situation. It ensures that you buy more units when the market is low and lesser units when the market is high. This helps bring down the average cost per unit in the long-run. Lowers risks In SIP, you can invest small amounts at regular intervals instead of a huge lumpsum installment at once. This helps you to stop the investment whenever you wish to. You can also stop investing in SIP incase you change your fund manager or if your investments are not offering you good returns. Financial Discipline In SIP, you can set aside a fixed amount of your income every month. This will help you achieve your financial goals in a disciplined way. You can save a certain amount and use the remaining income for your other expenses. Convenience In SIP, a fixed amount will automatically get deducted from your bank account on a set date every month. You need not go out of your way to make any investments. How to invest in SIP? You can invest in SIP either through the traditional method or online method. Both have their own advantages and disadvantages. You can select a mode of investing according to your choice. You may consult an expert financial advisor and see what suits you the best. Some fund names worth considering are; SBI BlueChip Fund Growth HDFC Mid-Cap Opportunities Fund Growth Mirae Asset India Equity Fund Growth ICICI Pru Bluechip Fund Growth Franklin India Equity Fund Growth Eligibility criteria to open an account for SIP are; You must be a resident of India, an NRI, PIO (Person of Indian Origin) who resides abroad Above 18 years of age Have your own bank account with funds in it The SIP installment amount should be available easily before the investment due date You can start investing in SIP as and when you wish to. However, it is advisable that you start investing early as it will help you build a better saving corpus over time.
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