SIP has been gaining quite a popularity in the Mutual Fund market. No matter whether you are new to the field of mutual fund investment or an old player, there’s a high chance you’ve already heard of SIP. However, if you’re new to the term and don’t know much about it, check out our ultimate SIP investment guide for beginners, to learn all you need to know about investing in SIP.
What Is An SIP?
SIP stands for Systematic Investment Plan. And as the name suggests, SIP is a systematic, disciplined, investment route offered by Mutual Funds. It is a route that allows you to start investing in Mutual Funds using smaller deposits, rather than waiting to save up a good lump-sum amount for investing.
In an SIP, you can invest a fixed amount at regular intervals in any of the mutual fund schemes of your choice. Instead of making a lump-sum investment, you can easily invest once a month or even once a quarter to your desired mutual fund scheme. Similar to a recurring deposit in a bank, here you can start investing with as little as ₹500 a month.
How Does an SIP Work?
Investing in SIP is extremely easy and hassle-free. All you have to do is choose a mutual fun to invest in, give your bank standing instructions and a monthly or quarterly deduction will be made directly from your bank account on a specified date. That way you don’t even have to worry about missing your investment date. SIP is especially good for people who want to start investing early to build long-term wealth.
Image by user6702303 on Freepik
Image by user6702303 on Freepik
Benefits Of Investing In SIP
There are numerous benefits to investing in SPI. Today, in this SIP investment guide for beginners, we’ll be listing out a few of those for you to consider before you start your investment journey.
Rupee-Cost Averaging - Net Asset Value, also known as NAV, keeps fluctuating. But with SIP, you can earn better rupee-cost averaging as your investments are spread out throughout the year. This means, that when the NAV is high, you get a certain number of units for your investment amount. Similarly, when the NAV is low, you get a higher number of units for the same investment amount.
Lesser Funds Required - As compared to the lump-sum purchase system, SIP requires way less investment at a time. You can start your investment journey with as little as ₹500 a month by choosing your best SIP plans.
The Power of Compounding - When you invest through SIP, you not only earn interest on your purchase amount but also on the interest earned in the previous month. This is called the power of compounding. For example, if you buy funds worth ₹1000 and get an interest of 2% on it, your total value at the end of the month would be ₹1020. And the coming month’s interest will be calculated on ₹1020 and not ₹1000.
No Market Expertise/Timing Needed - Since SIP is a long-term plan, you don’t need to have a vast knowledge of the market. In fact, you don’t even have to time the market. Since SIP is a disciplined way of saving money, it allows you to take advantage of Market Volatility instead of having to time the market for your purchases.
Tax-Saving Investment Plan - SIP also helps in saving Tax. ELSS lumpsum and SIP tax benefits can be availed up to ₹1.5 Lakh every year under 80C while filing your Income Tax Returns.
Who Can Invest In An SIP?
Any individual who is an Indian Resident, Non-Resident Indian (NRI), or Person of Indian Origin (PIO) is allowed to invest in SIP. However, the investor must be over 18 years of age and have the necessary funds in the bank account. The investor should also be KYC Compliant to start with their investment journey via SIP.
That’s it! you’re ready to start investing. While we won’t be getting into the debate of which is the best SIP to invest in, you can easily study the market a little and find out your best SIP plans as per the current market status.
This article does not intend to pass on any financial advice and BQ Prime does not endorse any of the funds/schemes mentioned above. Please invest at your own discretion.
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