Everybody knows that SIP is a good investment option. But even the investors in SIPs get confused between mutual funds and SIPs.
Systematic Investment Plans (SIPs) is not a synonym for Mutual funds. SIP is an instrument that helps you invest in mutual fund schemes, precisely the equity mutual fund schemes.
Mutual fund advisors do not recommend investing a lumpsum amount in mutual funds. The better way to invest in mutual funds is, stagger the investment according to the amount of money.
SIPs are convenient for salaried people earning a fixed amount of income.
What is SIP?
SIP allows an investor to invest a fixed sum regularly in equity mutual funds.
Why should one invest in SIPs?
It brings financial discipline in life. It helps to invest a fixed amount regularly without caring about the index level, market mood, etc. Example- You need to invest a fixed sum of money every month in mutual funds. If the market conditions are apprehensive, you will postpone your investments. If the market conditions are optimistic, you might invest more.
SIPs avoid all these difficult situations, as you need to pay a fixed amount irrespective of the external environment factors.
What are the other advantages of SIPs?
SIPs help to average out the cost and maximize the returns on investment. In SIPs, one needs to invest regularly, irrespective of the market conditions. One gets more units when the market is low and fewer units when the markets are booming. It helps to average out the costs.
Another advantage that SIP provides is the power of compounding. One gets returns on the returns earned on the investment, which is known as compounding.
It helps to create wealth and achieve long term financial goals with regular amounts of investments.
What is the minimum amount required to start a SIP?
One can invest a minimum amount of Rs 500 in mutual funds via SIPs.
Are SIPs customizable?
Yes, investors can customize the SIPs by investing money as per their convenience, like fortnightly, monthly, bi-monthly.
Step-Up SIPs allow investors to increase the number of regular investments. ‘Alert SIP’ notifies the investor to buy more mutual fund units when the markets are down.
In the case of ‘Perpetual SIPs’, investors are bound to continue their SIPs till the achievement of the goal. They cannot choose the maturity date.
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