Let’s learn about the meaning of SIP, why investing in SIP is a great option and everything else there is!
Systematic Investment Plan (SIP) Meaning
SIP, as a concept in mutual funds, stands for Systematic Investment Plan. As the name suggests, it is a systematic way to invest a fixed amount at regular intervals. A systematic Investment Plan (SIP) is an excellent approach to meet your financial goals either monthly, quarterly or semi-annually. SIP is often used as another word for savings and investment for people who are just entering the world of personal finances.
Benefits Of SIPs
Now that we have established a basic understanding and learned the meaning of SIP, you must be wondering, “Why should I invest in SIPs?” SIPs have gained the name and fame in the field of investments due to the following features:
Smart Investment Plan
You can also interpret SIP meaning as Smart Investment Plan or Small Investment Plan. Why is this so? For SIPs, you neither require a large sum of money nor rigorous planning. Thus, SIP offers a low initial investment that doesn’t hurt your pockets.
Flexibility
SIPs are a great option for flexible investment.
You can choose the interval at which you invest, such as weekly, monthly, quarterly, semi-annually, yearly, etc.In case of a financial crunch, you can pause the SIP for one to three months.A SIP not only lets you invest a fixed amount periodically but also gives you the “SIP-Top Up” option to make room for additional contributions.
Compounding
In simple words, compounding refers to the process of earning returns on the returns of your investment. Systematic Investment Plan is fueled by the power of compounding. This means if you are investing a certain amount of money in a mutual fund scheme, your gains are reinvested to generate additional earnings over time. Let’s look at an example to understand this concept better. Suppose you invest ₹2,000 a month in an equity fund through SIPs at an interest of 12% for 40 years. Your invested amount will be ₹9.6 lacs, which will lead to a wealth gain of (imagine the drum rolls) ₹2.3 crores and a final corpus of ₹2.4 crores.
Rupee Cost Averaging
The theory of rupee cost averaging is that you can buy more units of mutual funds even when your Net Asset Value (NAV) is low. When the markets are high the same SIP amount can purchase a lower number of units, and vice versa. As compared to lump sum investment, SIPs are relatively less affected by the volatility of the markets. This gives you a chance to average out your purchasing costs over the tenure of your investment.
Financial Independence
Looking for SIP meaning, you have successfully taken the first step towards fulfilling your financial goals. This means that you are carefully chalking out a plan for financial security for your coming days and gives you a direction to make sound decisions.
Factors To Consider Before An SIP Investment
It is to be kept in mind that SIPs can only yield good returns when you’re in for long-term investment. Apart from that, there are a few other factors to consider before you invest in a SIP. Let’s have a look at these factors:
Investment Goals
Investment should be aligned with your goalFor example, if you’re planning to create an emergency fund, a debt mutual fund is a good choice for you
SIP Amount
Flexibility to choose an amountMinimum ₹500 per monthNo upper limitAvail tax benefits for investments in Equity Linked Saving Schemes (ELSS) under section 80C of the Income Tax Act
SIP Interval
Flexibility to choose from weekly, monthly, quarterly, semi-annually, yearly, etc.Choose it according to your cash flow
SIP Time Period
No fixed tenure (open-ended investment)Tenure can be of one, two, five, ten, or any number of years.
Final Words
SIPs are a powerful investment method that lets you create a fixed periodic investment in mutual funds. If you want to invest in a Systematic Investment Plan, all you need to do is complete your KYC and set your investment goal. Based on your financial goal, you can choose the particular fund you want to invest in and you’re good to go!
