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What Is SIP?

What Is SIP

What Is SIP?

I meet many people everyday for their financial planning. Now a days SIP is the hot topic amongst retail investors. They have only heard this word called 'SIP'. Some of the factors I think why people are taking more interest in SIP today are they have heard from someone that - it provided very healthy returns in last 5 years, it helps in creating wealth, it is very easy and hassle-free, it can beat inflation etc. etc.

Many people ask me to invest in SIP. There exact wordings use to be 'I want to invest in SIP!'

Here, I would like to clear one point to all of you my dear countrymen that, no one can invest in SIP. One can invest in Mutual Funds via SIP which is called "Systematic Investment Plan".

Hope, you are getting my point!

Let's elaborate this magical term SIP in detail:

What is SIP?

A SIP (Systematic Investment Plan) is a very interesting and convenient tool, offered by mutual funds to help investors invest a fixed amount of amount in a selected fund regularly in the disciplined manner over a period of time. The frequency of investment is usually weekly, monthly or quarterly. The concept of SIP is similar to a recurring deposit. A SIP is a disciplined approach towards investments and helps you to create wealth for the future by investing a small amount of money periodically instead of lumpsum amount.
For me SIP simply means - Save, Invest and Prosper!!!
How SIP works?

SIP works on the principle of regular investments. In SIP, your pre-determined amount of money is auto-debited from your bank account on a selected date of every month and invested into a particular mutual fund scheme chosen by you. A certain number of units based on the ongoing market rate (called NAV or net asset value) for the day are allocated to you. Every time you invest money, additional units of the mutual fund scheme are allocated to you on the basis of market rate. In this way, SIP provides with the flexibility to buy more units when the price declines and lesser units when the price surges. Hence, units are bought at different market rates and investors avail from Rupee Cost Averaging and the Power of Compounding. Moreover, the handling of your money is done by market experts (Fund Managers) and is none of your headache.
As you go to earn money, your SIP makes your money work for you!
Rupee-Cost Averaging

With volatile market, timing the market is a difficult task. Rupee Cost Averaging is an automatic investment strategy that eliminates the need to time the market. When you invest a fixed amount in a fund at a regular interval over a period of time, you fetch more units when the price is lower and lesser units when the price is high. In this way, you would reduce your average cost per unit over time. This strategy is called ‘rupee cost averaging’.
Averaging is very helpful to reduce over all risk of your Investment!
Benefits of Compounding

Investment expert always recommend that one must start investing early in life and keep investing regularly. The main reason for doing that is the benefit of compounding. A small sum of money invested regularly can grow to a large sum. This helps in creating a large amount of wealth which includes your own contribution, plus returns compounded over the years. Compounding means earning a return on returns. The longer the compounding period, the higher the returns.
Compound Interest Is The Eighth Wonder Of The World. - Albert Einstein
Disciplined Investing

Discipline is the key to investing success. The important rule of building your corpus is to invest regularly and maintain a discipline in your investing pattern. When you invest through SIP, you commit yourself to invest a fixed amount regularly. Investing regularly a small amount of money can often lead to better results than investing in a lumpsum. Every investment is a step towards achieving your financial goals.
Discipline is the most important step in the journey of success whether be it in your Professional Life, Personal Life or Financial Life!
Flexibility

It is always advisable to continue SIP investments with a long-term perspective but there is no such compulsion. You can discontinue or pause the plan at any time. SIP amount can also be increased or decreased.

It is always advisable to keep on increasing minimum 10% of your SIP amount every year! And if you can increase more than that then it's very good for your financial success and freedom.
Today, Everyone wants Flexibility for tension free life!
Simple and Convenient to monitor

SIP is a simple and convenient mode of investment. You do not have to spare time from your busy schedule to make your investments. SIPs come with easy payment options. You can either give post dated cheques for your fund or just opt for an Auto Debit from your bank account. You can also monitor your investment online or through monthly statement of accounts.
Thanks to the amazing Internet technology and awareness to use the power of it in your own cell phone!
Long-Term Gains

SIPs have the potential to deliver good returns over a long investment horizon due to rupee-cost averaging and the benefits of compounding.
Always Invest For The Long-Term - Warren Buffet
Affordable

This one is the most important point to focus on for Indians, SIPs are well affordable because you can start investing with an amount as low as Rs 500 per month!
People Want Something That Is Affordable.
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