What is a SIP?
Systematic Investment Plans (SIPs), as the name suggests, allow investors to invest in Mutual Funds in a systematic manner. A SIP is linked to the investor’s bank account and deducts a predetermined amount towards a specified Mutual Fund periodically. SIPs can be monthly, weekly, biannually, annually. This is one of the most popular methods of investing in Mutual Funds as small investments can be made periodically rather than having to invest a large lump sum.
Benefits of SIP
Financial independence is largely dependent on a person’s capacity to save. By saving a small amount every month at an early age, an individual can drastically reduce financial burdens in the future. SIPs all investors to make savings in one of the most convenient ways, by deducting the SIP amount directly from the investor’s bank account.
Rupee Cost Averaging
SIPs give investors the advantage of Rupee Cost Averaging. As the SIP amount is predetermined by the investor, if the price of units goes up the SIP invests in less number of units and as the price of units comes down the SIP purchases more units, this brings the over price per unit down. SIPs do not guarantee returns but can mitigate volatility risks due to exposure to stocks.
SIPs offer the convenience of investments being made directly from the investor’s bank account, this reduces the workload on the investor. SIPs are also one of the easiest investments to make and can be made completely paperlessly. Many apps and AMC websites allow investors to make investments online.
Consistency in Invest
One of the keys to making a strong portfolio is consistency in investing. Through a SIP, investors get the benefit of growing a disciplined approach towards investing regularly. As the amount is automatically deducted from the investor’s bank account they do not have to go through the process of making an individual investment periodically. This removes a lot of stress and even if the investor forgets to make an investment, it is done automatically.
The key to building wealth is to start investing early and to keep investing regularly. A small amount of money invested regularly can grow to a large sum. This helps in creating a substantial amount of wealth which includes your own contribution, plus returns compounded over the years.
SIPs are suitable for investors who are seeking to build a disciplined approach towards investing and have a regular income. As SIPs are executed over a period of time, and substantial gains can be seen in the long run, therefore, it is mostly for investors that have a long investment horizon.
A Flexi SIP is a type of SIP that allows the investor to change the investment amount as desired. The investor needs to change the SIP amount at least 3 days before the execution of the SIP. This gives the investor the flexibility to change the investment amount according to changing expenses or incomes.