Sunday, July 5, 2020

Systematic Investment Plan (SIP) , A Newer way to Achieve what you dream.

sip,, systematic investment plan

SIP regularly works on the principle of investment. It is like your recurring deposit in which you put a small amount every month.

This gives you the freedom to invest short-term (monthly or quarterly) in mutual funds instead of investing huge money at one go. SIP gives you the convenience of investing Rs 20 in a mutual fund instead of investing Rs 5,000 together.
This allows you to invest in mutual funds without affecting your other financial responsibilities. To understand better how SIP works, you need to understand the rupee cost averaging and the power of compounding.

SIP has brought mutual fund investment within the reach of an average man as it also makes it possible for those tight budget people who can invest 500 or 1,000 rupees on a regular basis instead of investing big at a time.

Making small savings through SIP may not seem attractive at first, but it gives investors the habit of saving and in the growing years they give you handsome returns.

Not only this, it also saves the rich people from the possibility of investing at the wrong time and wrong place. However, the real benefit of SIP comes from investing at a lower level.

Should a typical investor invest in a mutual fund through SIP?

There are two answers to this question-

1) If the investor can take as much risk as the lump sum investment, then he can invest lump sum.

2) But if the investor cannot take too much risk of lump sum investment then he should do SIP.

sip,, systematic investment plan

Some Benefits of SIP are below- 

1. Power of Compunding

Investment gurus suggest that a person should always start investing early. One of the main reasons for this is the benefit of getting compound interest. Let us know this with an example. Rahul (A) starts saving Rs 1,000 every year from the age of 30, while Raj (B) saves the same amount but from the age of 35. When both get their invested money at the age of 60 years, (A) has a fund of 13 lakhs and (B) has only 8 lakhs. In this example we can assume returns at the rate of 8%. So it is clear that the difference of investment of Rs 50,000 in the beginning has an impact of more than 5 lakhs on the last fund. This is due to the power of compounding. The longer you invest, the more you will get returns.

Now suppose that (A) instead of investing 10,000 every year, invests 50,000 after 5 years from the age of 35, in this case his invested money will remain the same (which is 3 lakh) but he should be 60 years old In this, a fund (fund) of 11 lakh is found. This shows that even after putting the same amount of money in late investment, one loses the benefit of compound interest initially.

2. Unsupervised Investment-

The main rules to keep your money fund safe - invest continuously, focus on your investments and maintain discipline in your investment method. By withdrawing some amount every month, you will not get much difference on your monthly income. It would be better for you to save some money every month by withdrawing the money collected for large investment.

sip,, systematic investment plan

3. Average of Rupee Price (Rupee Cost Averaging)

It is mainly useful for investing in shares. When you invest the same amount of money in a fund at frequent intervals, you buy more units of stock in times of lower rupee value. Thus your average price per share or (per unit) decreases over time. It is an average cost policy of Rs. Which is designed for a long term sensible investment. This feature reduces the risk of investing in volatile markets and keeps you comfortable in the ups and downs of the market.

Those who invest through SIP can handle the ups and downs of the market as well as the time of market growth. The average cost of your investment by SIP is low, even when you go through all kinds of high or low levels of the market.

4. Convenient

This is a very easy way of investment. All you have to do is to deposit the check along with the completed enrollment form, so that the check will be deposited in the mutual fund on the date you said and share units will come to your account.

5. Other advantages ---

• There is no tax or fee for investing or withdrawing money in SIP investment.
• The tax on capital gains (wherever applicable) depends on the time of investment.

Cons of SIP
  • Require long-term commitment
  • Can carry hefty sales charges
  • Can have early withdrawal penalties
  • Could miss buying opportunities and bargains

Invest your wealth judicially keeping every point into your consideration, take advice from your financial advisor , afterall it is your hard earned capital.

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