All About SIP
What Is SIP?
How Does SIP Work?
Features Of SIP.
Why Invest In SIP?
So let's get started.
1st, What Is SIP?
SIP stands for a systematic investment plan. SIP is a medium through which you can invest in mutual fund schemes. It is an easy, flexible, and smart way to start the journey of investing. The minimum amount to invest in SIP is ₹500 and there is no maximum limit. You can invest weekly, monthly, quarterly, or yearly depending upon you.
Now when you have understood what SIP is. Then let's move to the 2nd point.
2nd, How Does SIP Work?
Like I told you earlier. You can set a fixed amount and time according to your comfort whenever you want to invest.
When you fix the amount and time, the money will be automatically deducted from your bank account like in the case of EMI. But this is not a loan that has to be given under any circumstances. You can stop the SIP whenever you want.
Through SIP you can invest in mutual funds schemes and buy mutual funds units.
Through SIP you can get the advantage of Rupee-Cost averaging and the Power Of Compounding. Let me explain both the terms.
Rupee-Cost averaging means you don't have the expertise and time to check whether the market is up or down and you don't have an interest either but you want to invest to secure your future. Here comes the role of SIP. You will invest every month a fixed amount at a particular date without worrying about the market whether it is UP or Down. If you invest in this manner then you will average returns as shown in the graph minimizing the loss of risk. This is rupee cost averaging.
Now Let Us Understand Power Of Compounding.
To understand this let's take an example. Alex starts SIP at the age of 35 and invests Rs10,000 per month for 20 years till he is 55.
Whereas.
Bob stats SIP at the age of 25 and he also invests Rs10,000 per month for 20 Years till he is 55.
Now taking an average of 9% Alex's investment will be 52.4 lakh whereas Bob's investment would be 1.22 crore.
Amount invested by both was the same but Bob got higher returns, almost double because he was for a long time.
This is the power of compounding. That's why everyone tells you to start your investment journey as soon as possible.
Now let us discuss.
3rd, Features Of SIP.
SIP is done in open-ended funds which means you have the control to stop the investments and take out the amount whenever you want.
There are no fixed years that you have to Invest for this amount, you can stop your investments anytime you want and can continue them later.
You have the control to withdraw the amount whenever you want. You can withdraw the full amount or a % of it. It depends on you.
You can easily increase and decrease the number of your investments anytime you want. Suppose you were investing 1000 Rs per month but now your salary has increased and you want to Invest 2000 Rs per month. Then you can easily change the amount. On the other hand, if you feel that you can invest only 500 Rs this month due to an emergency then you can do that also. The minimum amount to invest is Rs 500 and there is no maximum limit.
Now let us discuss the last step.
4th, Why Invest In SIP?
SIP helps to manage market volatility. So your money would not be at much risk. This is a perfect option for those who don't like to take much risk and want to play safe.
SIP also helps you to build a habit of investing as the amount is automatically deducted from the account when the date arrives.
There are no charges to invest in SIP. No middle-man is involved.
You can directly invest in the mutual funds and they will buy stocks for you.
You can gain compounding benefits which is the most important aspect of investing.
And finally, you can start with as low an amount as rs 500. So now the excuse will not work that I do not have money to invest. Start investing with rs.500 & have fun.
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