All You Need to Know About SIP
India has seen certain trends in investing in the last few years. One of them is the increased acceptance and participation in mutual funds through Systematic Investment Plans (SIPs).
The number of SIP mutual fund accounts in the country has been multiplying. As of June 2022, the SIP accounts stood at 5.55 crore. In the second quarter of this Calendar year alone, 59.50 lakh new SIPs were registered in the country. But what is a SIP, and why is it so popular? Let's find out!
How does SIP work?
SIP is a method of investing in mutual funds. In SIPs, you invest a fixed amount of money at regular intervals over a period to achieve your financial goals. SIPs make it easy for retail investors to invest in equity and debt instruments.
Say you want to invest in stocks but don't have substantial capital. If you opt for a SIP in an equity mutual fund, you can start investing in the stock market with ₹500 every month. Doing this consistently for a few years can build enough wealth to meet your medium-term and long-term financial goals.
You can also choose the lump sum method to invest in mutual funds. Here, you invest in a fund of your choice in one go. The lump sum method is helpful if you have significant capital and understand market trends and price movements.
SIP benefits that make it a great investment tool
Here are the key reasons for the popularity of SIP mutual funds:
1. You can begin today
The golden rule of investing is to start early. Most often, the reason investors delay investing is the lack of funds. But since SIP mutual funds allow you to begin with less capital, you can start immediately. Also, when you invest in SIP, a professional fund manager looks after your money, so you don't have to worry about managing your portfolio.
2. There is no need to time the market
When you invest in mutual funds through SIP, there is no need to time the market. That's because SIP mutual funds apply rupee-cost averaging. Since you regularly invest irrespective of the market price, more units are bought when the price is low and fewer units are bought when the price is high. It averages out the cost of your investment over the long term while hedging the risk of market volatility.
3. You can undertake goal-based investing
When you have goals, such as buying a car, travelling to places on your bucket list, saving the down payment for your first home, funding your wedding, and more, it can seem like a challenging task to finance all the expenses. However, one of the benefits of SIP is that you can invest small amounts regularly and meet your goals in the desired timeline. You can use an online SIP calculator to understand how much money you need to invest monthly to meet your goals and plan accordingly.
How to start a SIP investment?
Now that you know the benefits of SIP, you may be wondering how to invest in SIP. You can easily open a SIP account online. However, you must first identify the type of mutual fund you want to invest in based on your goals, risk appetite, and investment horizon. Once you know that, you can look at the different mutual fund schemes offered by the country's top asset management companies (AMCs).
After you have narrowed down the mutual fund scheme, you can create an account online with the AMC by entering your name, phone number, and email ID. You can then choose the mutual fund scheme and select the SIP option. Set the SIP amount and frequency, upload your KYC documents and a copy of a cancelled cheque, and you are good to go!
Depending on the AMC, it might take about 15 days to get your SIP registered. The primary difference between starting a SIP online vs offline is that if you want to opt for the offline route, you must contact the customer representative of the AMC, fill out the form, and submit it at the branch office of the fund house.
A SIP mutual fund is a great way to inculcate the habit of disciplined investing. It helps you earn from the markets while hedging the risk of volatility. So, whether there is a bull market or a bear market, you do not need to stop your SIP investments.
You can also enjoy tax benefits by investing in tax-saving mutual funds like the Equity-Linked Savings Scheme (ELSS). Whether you are new to investing or are an experienced
investor looking to make your portfolio more solid, SIP mutual fund investments are worth exploring.
Mutual fund investments are subject to market risks, read all scheme related documents carefully.