SIP is becoming one of the main options for investors now a days. Investors pump in as much as 4500 crores per month through SIPs compared to around 1200 crores in early 2014. Systematic investment in a Mutual Fund make good sense especially in the volatile equity What is SIP.
A Systematic Investment Plan or SIP is a smart and easy mode of investing money in mutual funds. Certain pre-determined amount is deducted from your account on a regular basis (monthly, quarterly etc.). Money is invested in the specific mutual fund scheme and the units are allotted based on the current Net Asset Value (NAV). It is one of the best planned approach that help you build the saving and investment habits.
How to Start Investing in SIP?
At present scenario, you don’t really need to run behind the paper work. All the forms are filled online! First and most important task would be to fill the Know Your Customer (KYC) form. You Identity proof, address proof and physical existence verification are also required along with KYC to invest in mutual funds.
Why to invest in SIP?
Well, here are the top 7 reasons to invest in SIPs:
1. Diversified investment:
It is always a good thing putting eggs in different baskets. The same logic applies in your investment decision as well! Yes, you would be able to achieve diversification in your investment through SIPs. Small amounts on a regular basis are allocated to different fund schemes and thereby the overall risk of investment is reduced. So, the down trend in a particular company/sector doesn’t really impact your investment return.
2. Management of funds by experts:
Mutual funds are always managed by the expert fund managers. These experts regularly carry out the research of particular company/sectors and also, they track the market on a regular basis. So, when compared to the equity investments, the investor can have less expertise and spend lesser time in mutual fund investments.
3. Market Timings is irrelevant:
You would need to track the market timings when invested in equity market; however, the market timings become irrelevant in case of SIP in mutual funds. Since, SIP facilitates regular investment of money, there is also no risk of investing huge amount at a wrong time. The market timing and day to day market trend, does not really impact your investment.
4. Transparency and well regulated:
The mutual funds sector is well controlled by both SEBI and AMFI. They have introduced many regulations for smooth functioning of mutual funds industry. This creates safe and convenient environment for investors to invest through mutual funds.
5. Reduces Average Cost:
SIP means investing a fixed amount on a regular basis. Investor will get more units when the market is trading low and less units when the market is trading high. Generally, we don’t invest when the market is trading low; however, SIP makes us to buy even when the market is low which is actually a good time to invest!
6. No burden on our day to day spend:
Mutual funds allow us to invest a small amount like Rs. 500 or Rs.1000 through SIP. It makes our investment easier as the impact of investment on our monthly spend is very low. Hence, SIP becomes more beneficial to the small scale investors.
7. Meet Long Term goals:
Small investment on a regular basis help an investor to get good return in long term. Arranging money at a short notice is always difficult, however, it would be really helpful when you have the regular investments.