SIP in Mutual Fund | Wealthcare

WHAT IS SIP IN MUTUAL FUNDS?

Savings and investment have become an integral part of life. Being aware of one’s own investment goals, saving plans and various other systematic investment plan and schemes is an essential part to perform in recent times. To be self-aware and knowledgeable about aspects such as these are necessary and additionally, important as well. Planned and clever saving methods and investing techniques perform a great deal these days. It is only with the proper amount of saving systematic investment plan, and policies that a future grows better and brighter.

Among the many applied and preferred mutual fund SIP investment methods, one most popular method or way out is the Systematic Investment Plan or the SIP. It is important for every individual and even all the mutual fund investors to know and understand what

exactly SIP or the Systematic Investment Plan is and what it claims for/at. It is important to be self-aware and at the same time, educate oneself about the idea and the primal consequences that lie behind SIP or the systematic investment plan. One should as well be aware and knowledgeable about the advantages and disadvantages of SIP or the systematic investment plan before applying it to use or directly making use of it in any sort of practice.

Thus, the systematic investment plan or the scheme in the discussion can be of great help and use if used and applied in the correct sense. However, if an individual or any mutual fund investor blatantly uses it without the knowledge of its pros and cons, this plan can be a disaster as well. Thus, what is important and best is to first gain adequate knowledge and educate oneself about all its possible advantages and demerits and then take a step ahead to make its use in full force.

WHAT IS A SYSTEMATIC INVESTMENT PLAN (SIP)?

SIP or systematic investment plan, as already mentioned and discussed above, is a way to invest in a mutual fund SIP. This is an automated way to invest in mutual funds. What happens is that an individual starts SIP and then continues for as many months as they prefer or even like. This can be predetermined or you can opt out of SIP in the middle. The following are questions to answer when configuring SIP:

Which fund scheme?

It is important to be aware of the type of fund scheme to be invested in. Hence, an overall idea or knowledge only about the systematic investment plan or scheme is not really adequate or sufficient. One should, thus, be aware of the multiple fund schemes that are prevalent in the times and then decide rightly. An individual needs to decide which fund to invest in through SIP. This is usually an equity fund. It is, therefore, essential to learn more about equity fund types. It is only then that the ignorance and the doubts over these fund scheme types would be erased in totality and a rational decision can be taken.

What will be the frequency?

This can either be monthly or quarterly. Since most people get paid monthly, once per month is the most used and common frequency which people would choose for SIP. In cases such as these, the most performed and the usually followed methods are often followed.

Things are kept easy and the simplicity of the procedures is maintained.

How much would be the amount for this?

In addition, the amount of money for each fund plan per month will be decided. This means that if individuals start SIP with two fund plans, the people need to decide how much to invest in each plan on a monthly or a quarterly basis. Thus, a proper and clear-cut plan has to be strictly followed and hence, abided by as well. It will not be an easy task or a clever move if the steps to a proper procedure are not followed. In such cases, the funding plans as well the scheme that

has been decided upon would merely prove to be an utter failure and nothing more than that.

WHY Choose SIP? On one hand, there are several reasons as to why SIP must be adhered to, there are also advantages which are numbered only two: Cost Averaging This is an easy, simple but powerful idea. Capital markets are extremely volatile, with millions of market participants acting profitoriented. Imagine a mall with several millions of potential buyers and sellers. This introduces a lot of uncertainty, ambiguity, and it is considered impossible to predict when stocks and trusts can be found at bargain prices. This is a genuine problem. This is primarily because to generate returns, you have to be able to buy cheap and sell high. Equity investments do not generate returns if prices cannot be predicted accurately. The cost averaging method suggests that you do not have to worry about fluctuating market movements.

When investing in a trust, you will be instructed to ignore the price.

However, when you realize that the long-term trends in the market are rising, this idea begins to sound acceptable. That is, check the current market level and check the market level 10 or 15 years from now. Perhaps you will find the market at a much increased and upgraded level in 10- or 15-years’ time.

This historical trend broadly confirms the logic of SIPs investing without worrying about current market levels. The average purchase

price of an investment will be lower than the sale price in 10-15 years. Also, the longer you stay, the more likely you are to make a return close to your expectations. This is better and more properly explained by the concepts of moving returns and standard deviations.

Disciplined Investing The best investing methods focus on eliminating human bias. Cost averaging removes human distinctions and biases of greed (when the market is performing quite well) and fear (when the market is losing ground every single day). The other natural human defect is spending if people have an easy take or access to money. This is mainly seen in people with less responsibility — in their twenties.

When people start earning, they are new to spending and saving and often do not focus on saving. Readers might agree when said, that if you find your bank balance is lower than expected, you will not spend it on something you do not need or purchases can be delayed without significant impact. A good strategy to maintain your balance artificially low is to separate your savings and then place them in a position that is not easily accessible like a debit/credit card. Equity Mutual Fund SIPs offer a great option to set aside your savings while ensuring that they increase and enlarge at a rapid pace. Mutual fund withdrawals are simple, but take time to reach your bank account — up to 3 business days. This aspect is especially useful to avoid the temptation to spend the invested money.

Goal-Based Investing

If you can expect a return on investment, SIP will help you predict the corpus you can create in 51015. If you have financial goals such as buying a car or home or funding your child’s education or marriage, you can calculate the amount of money you need to reach these financial goals: increase. In the early stages of work-life, it is not easy to plan capital-intensive goals with a lump sum investment.

For example — suppose someone recently started working at the age of 22 and wants to pay a down payment for the house they want to buy at the age of 30. 250,000 rupees. A person must invest Rs. even assuming a lump sum equity investment of 12% in 8 years. Today is 101,000 rupees! This is especially difficult for those who are just starting their career.

Meanwhile, Rs. A 15,600 SIP creates a corpus of Rs. 25,000 for that person. This seems to be far more feasible than a one-time investment of Rs. 101,000 for a 22-year-old. Thus, the systematic investment plan or SIP facilitates goal-oriented investment.