The Indian stock market began to show a downward spiral in October 2021, after a steady rally of more than 18 months with no major corrections. Since then, it has been exhibiting signs of consolidation, and it is still down roughly 6 percent from its top. Many investors who missed the earlier rally may be considering a more aggressive approach to the equities market, including lump-sum investing.
SIP is for a Systematic Investment Plan, and it is a technique of investing in a mutual fund of your choice in which the money is withdrawn from your bank account regularly (monthly or quarterly). One of the easiest and most efficient ways to invest in mutual funds online is through SIP programs. Whatever the market does, you will receive a specific amount after the term for your monthly or quarterly payments.
How does SIP work?
Investing in a SIP is pretty simple. After you’ve decided on a mutual fund plan to invest in, you’ll need to specify the following:
- The amount of money you wish to put into it
- The time frame in which you wish to make an investment
Assume you opt for Rs. 5000 monthly SIP. Every month, Rs. 5000 will be deducted from your bank account, and units in the mutual fund plan of your choice will be purchased in its place. When the market is down, the Rs. 5000 SIP will buy more units; when the market is up, the Rs. 5000 SIP will buy fewer units. You’ll be able to engage at all market levels and lower your average purchasing price.
Advantages of SIPs
Stop Anytime
SIPs give you the freedom to stop, increase, or decrease your SIP amount at any moment, with no penalties for late payments. You only have to opt out of a SIP plan to halt it. After terminating your recurring SIP investment, you can receive a refund or continue to invest in the mutual fund.
Power of Compounding
SIPs allow you to invest small amounts over time methodically, enabling you to build up a sizable corpus.
Small Investment Amount
Most mutual fund schemes provide SIPs that allow you to begin investing as few as Rs. 500 each month. It is a far smaller investment than the most common investment options like FDs and ETFs. This ensures that the majority of people who have recently begun earning can invest to achieve their long-term objectives.
Rupee Cost Averaging
Rupee cost averaging is one of the benefits of investing in SIPs. This permits the money you invested to earn more units when prices are down and fewer units when prices are high throughout market ups and downs.
Flexibility
One of the key advantages of the SIP is that it allows you to choose the amount and duration of your investment based on your needs and suitability. You can start a SIP with as little as Rs. 500 per month and stop it whenever you wish.
Counters Inflation
Earning a real efficient rate of return, or, to put it another way, a return adjusted for inflation, is a crucial consideration when investing. By combating inflation, which would otherwise erode the purchasing power of your hard-earned money, earning a greater real return helps you attain your financial goals more comfortably.
Since inflation rises every year, an amount that appears considerable now may not have the same worth in a few years. Step-up SIPs raise your monthly payment every year, resulting in an overall gain in wealth that helps you beat inflation.
Final Thoughts
Your monthly SIP investment yields a return when you invest using a SIP plan. Those profits are added to your original investment and re-invested! As a result, your monthly SIP and your profits are subject to a cumulative effect over time, ensuring exponential growth.
