The Full form of SIP is Systematic Investment Plan.
SIP is a part of the share market under which we can invest a fixed amount of money through a mutual fund.
The traditional mentality of the Indian public is, either they save their money in the bank or spend it somewhere, only a few percent of people think about investing. The reason could be a lack of information and technology. The time has changed now, and we can learn about this through YouTube on our mobile.
Patience and Consistency are the two main factors that play an important role in a better return of SIP. Before investing in SIP, you need to research and select a good stock, then invest consistently for the long term and keep patience for at least 5-6 years.
Purpose of SIP
SIP provides better returns as compared to post-office and banks, with a low-risk involvement.
How to start SIP?
- You have to do KYC first by submitting documents (ID proof, Address proof, Passport Size Photo, Canceled Check).
- Then, you have to create an account in Fund house either by online or offline methods with the help of KYC.
- Then, you have to select a scheme and fill in all the details:
- Budget – How much of the amount do you want to invest?
- Frequency – You get different options to deposit your money (Quarterly, monthly, or annually).
- Term plan – For how long you will invest in SIP.
- Your money will be debited automatically from your bank account and deposited into the SIP portfolio, and your investment starts now.
Advantages of SIP
- Affordable – We can start with just Rs. 500/month.
- Flexibility – We can cancel/pause whenever we want without any penalty.
Disadvantages of SIP
- Many mutual fund companies focus on attracting customers by marketing and advertising rather than provide better service.
- Mutual Fund Managers cannot function independently because the transactions of investments depend on the investor(investor can withdraw their money any time).
- Schemes are limited to mid-cap only, which results in low returns.
Key Factor of SIP
Financial Discipline – Everything is handled by experts only, so we need to have faith in them and keep patience for the long term.
Rupee cost averaging – When the NAV of the scheme of any mutual fund company is high, then a few units are allowed at the same price and vice-versa. Thus the total average cost gets decreased as the installment of SIP gets increased.
Benefits of compounding – It gives profit by growing over the long term (return on the return).
- SIP is the simplest and safest way of entering into the share market and generating good income.
- Now, there are many online brokers available in the market which provide investing platforms like – Zerodha, HDFC Securities, ICICIDirect, Kotak Securities, AxisDirect, Reliance Securities, and much more.