Flip television channels, browse the internet or go from one page to another page of a newspaper and you are likely to come across advertisements related to systematic investment plans (SIPs). SIP investments have come a long way in the last few years, allowing several investors to invest in capital markets. If you are wondering why SIPs have generated so much noise and about their various intrinsic aspects, read on.
SIP Meaning in Share Market
If you want to invest in mutual funds regularly but do not have a large amount to do so, you can look forward to SIPs. SIPs allow you to invest specific money at predefined intervals in any fund you choose.
The amount could be anything, starting from as low as ₹ 500. Once you set up an SIP, the money from your bank account is debited and invested in your selected fund. The process goes on until you redeem your investment entirely.
Demat account opening in SIP enables investors to manage their mutual fund investments efficiently, as it allows for the automated processing of regular contributions. This streamlined approach makes it easy to track and hold your investments securely in one place.
How Does SIP Work?
Working of a mutual fund SIP is simple. Once you set up an SIP:
- The money gets deducted from your bank account on a particular date and invested in your chosen fund
- You get units allotted as per the fund’s prevailing net asset value (NAV)
- These units get accumulated over time
- If the fund performs well, the value of these units goes up in the long run.
Why Should People Do SIP?
Here is the million-dollar question — why should people do SIP? What are its potential benefits? The reasons are plenty. Some of them are:
Allows You to Start Small
You can start SIP investments with any amount you are comfortable with. You do not need a substantial amount to get started. Many fund houses allow investments from as little as ₹ 500 per month, which costs less than a cup of coffee and snacks at a three or five-star restaurant.
If ₹ 500 seems expensive, here is some good news for you. Capital market regulator Sebi is working with industry players to launch a ₹ 250 monthly SIP plan soon.
Imbibes Investing Discipline
Success in any sphere requires discipline, and investing is no different. SIP investments bring much-needed discipline into investments. They help you stay invested across market cycles. This discipline goes a long way in creating wealth for various life goals.
Benefit from Compounding
The legendary Albert Einstein famously remarked compounding as the world’s eighth wonder, with a good reason. Compounding, when implemented in investments, can help your money grow at a fast clip. Mutual fund SIPs can help you benefit from compounding.
If you wonder when money starts compounding in SIPs, the answer is the longer you stay invested. In other words, the longer you stay committed, the better the chances of reaping benefits from compounding.
Flexibility to Tailor Per Your Needs
We all want flexibility with our investments. SIPs give you the much-needed flexibility. You can increase the SIP amount whenever needed through top-ups and can even pause it if required. You can redeem only certain units of your SIP investments when needed and allow the remaining ones to earn returns. You can do mutual fund SIPs in equity funds, debt funds and hybrid funds.
The best trading app facilitate Systematic Investment Plans (SIPs) by allowing investors to automate regular investments in mutual funds effortlessly. These apps provide user-friendly interfaces, tracking tools, and insights, making it easy to manage and monitor your SIP contributions.
Monthly vs Quarterly SIP
When setting up a SIP mandate, you must select its frequency. Frequency is the interval when you want to invest in a certain fund. You can do so monthly or quarterly. So, what is a monthly SIP? As the name suggests, monthly SIP means investing every month. On the other hand, quarterly SIP means investing quarterly, i.e., every three months. You can choose either of them based on your needs.
Is SIP Safe?
Investments in capital markets are subject to several risks and SIP investments are not immune to it. Remember, you do SIPs in a mutual fund whose underlying securities consist of equity and debt instruments per the fund’s mandate and objectives. Also, it is not SIPs but the fund that generates returns. Hence, assuming that SIPs are entirely safe from market fluctuations would be wrong.
That said, SIPs in fundamentally sound funds have better chances to perform well. Also, Sebi keeps a hawk eye on the mutual fund industry and its working for protection of investors and their money.
What is the Investment Value of SIP?
Investment value refers to the total amount accumulated from your investments, including returns earned. The value depends on your contribution, the fund’s performance and the power of compounding.
How Many SIPs Can I Open in the Same Fund?
While you can open as many SIPs as you want in the same fund, it is better to top-up your existing SIP if it is doing well. This is because opening a new SIP in the same fund will not give you any real diversification benefit, as the fund will invest the money in the same underlying securities.
Instead, you can choose to invest in different funds from the same fund house or other asset management companies (AMCs) to diversify your investment.
Systematic Investment Plan vs STP Scheme
Another term you are likely to hear with SIP investments is a systematic transfer plan or STP. STP is opposite to SIP.
While you invest a specific amount of money at predefined intervals in a SIP, in STP, you transfer specific amounts from one fund (source fund) to another fund (target fund) of the same fund house at a particular interval. Depending on market conditions, you can opt for STP from an equity fund to a debt fund or vice versa.
Does Buying Stocks Like SIP Help Grow the Investment?
While SIPs are generally associated with mutual funds, you can also do them in stocks. Stock SIPs work similarly to mutual fund SIPs, where you invest directly into stocks at regular intervals. If the stock performs well, it can help grow the investment.
Conclusion
Now that you know what systematic investing is and its various benefits, it is time to reap the rewards. If you want to invest in SIPs and are looking for an SIP app, look no further than the HDFC SIP Investment App, HDFC SKY. Through this app, you can invest in mutual funds, stocks and exchange-traded funds (ETFs) and build a diversified portfolio.
