vrushangshah93@gmail.com Today we learn the meaning of SIP, how does SIP work, Benefits of SIP, Disadvantages of SIP, how to start a SIP, Things to consider while doing SIP and Power of investing early.
Meaning of S.I.P:
SIP stands for systematic investment plan. SIP is the best form of investment as you do not have to invest in multiple amounts instead of every month a fixed amount will get debit from your account so SIP can be done by anyone.
SIP is one form of investment in the stock market. If you do not know how to trade in the stock market, then SIP is the best tool for investment in the stock market.
How does SIP work?
- Regular monthly investment: You can choose a date and amount that you want to invest in SIP. Accordingly, every month on a fix date a fix amount will be debited from your account.
- Mutual Fund: You have to select a fund by keeping in mind your age, and goal.
Benefits of doing SIP:
- Regular Saving: By doing SIP, you can start saving your money and that too on a regular basis. This will give you confidence that you are investing and securing your future.
- Beat inflation: SIP has the power of compounding that can beat the inflation. As we know inflation level is increasing so we need a tool of investment that can beat inflation level and SIP has that power to beat inflation.
- Accomplish goal: One of the best advantages of SIP is to accomplish your goal. You can invest in SIP as per your goal. It will help you to get relief in the present as you are securing your future.
- Compounding benefit: Power of compounding can beat the inflation level and increase your wealth to the next level but for that you need to be invested for a longer period of time to get the benefit of compounding.
- Higher return: SIP has been giving higher returns as compared to other investment tools which rank SIP higher in form of investment.
- Liquidity: This is one of the best advantages of doing SIP as your money is in liquid form means you can redeem your money at any period of time and there is no lock in period in SIP except you have invested in any lock in period funds otherwise you can redeem at any point of time.
As the coin has two sides in the same way there are some disadvantages as well for doing sip.
Disadvantages:
- Market driven: SIP is totally based on a market driven so your return totally bases on market performances. If the market did not perform well then you will not get the return that you expected.
- Not for short term: SIP is not for a shorter period of time. You will not get any return in a shorter period so if you are an investor who wants to invest for a shorter period then you will not get the benefit of compounding.
- Patience is a key: SIP is all about patience. If you do not have patience then SIP is not meant for you.
- Depend upon fund performance: You need to review your fund in which you invested to track your fund performance. If you do not review then you will not get the return that you expected.
How to start a SIP:
- Define Your Financial Goals: Set your goals (Child education, child marriage, home, retirement).
- Risk Appetite: Understand your risk tolerance (high, moderate, low) and choose a fund that aligns with your preferences. Accordingly choose large cap, mid cap and small cap funds.
- Research and Select Funds: Based on returns, risk, and manager history.
- Complete KYC: Usually with Aadhaar and PAN.
- Register and Set SIP Details: Amount, frequency, start date.
- Authorize Auto-Debit: Link your bank account securely.
- Monitor and Review: Keep checking performance of the funds that you selected that will secure your return.
Things to consider while doing SIP:
- Goal: Firstly decide your goal why you want to invest in SIP. It can be your retirement goal, your child education, marriage, to buy a home or anything like that. Your goal will help you to stick with SIP.
- Selection of Fund: Select the fund by keeping in mind your age, your investment capacity and your end goal.
Power of investing early:
SIP will give you higher return in a longer run so start early as you can to get the benefit of compounding returns. So do not wait instead start and show some patience and monitor your fund and secure your future by getting optimum return.
So start early, have some patience with your investment, keep reviewing your funds, and get the benefit of compounding power and enjoy your retirement.
Thank you for your time.
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