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What is mutual fund SIP?

 

sip                                   1,10,000
sip calculator                                   8,23,000
systematic investment plan                                        5,400

 

Mutual fund systematic investment plan (SIP) which launched around 20 years back, have now become the most popular investment options for retail investors. Total mutual fund SIP accounts stood at Rs 5.28 crores (as on 31st March 2022). Around Rs 1.25 lakh crores was invested in mutual fund schemes through SIP in FY 2021-22, averaging more than Rs 10,000 crores per month.

What is SIP?

SIP is a method of investing a fixed amount, regularly – daily, weekly, monthly or quarterly in open ended mutual fundsSIP allows you to buy the units of your selected mutual fund schemes on a date chosen by you. On the chosen date, the SIP amount gets auto-debited from your bank account and invested in the scheme chosen by you.

Benefits of SIP

  • You don’t need a large sum to start systematic investment plan. You can start with small amounts (Rs 500 or Rs 1,000). Since your investment amount in the beginning is small, your overall risk is lower compared to large lump sum investments.
  • You can start investing in SIPs early in your working careers and invest for long tenures to get benefits of compounding. Compounding is nothing but the profits made on profits re-invested. Compounding makes your investment grow exponentially over long investment tenures. Longer is the investment tenure higher is the power of compounding.
  • Mutual fund investment through systematic investment plan is ideal for your long term financial goals because you can start early with small investment amounts from your regular monthly savings and get higher returns over long tenures.
  • SIP helps you remain disciplined in your financial plan by making market timings irrelevant. Even expert investors find it extremely difficult to time the market. You do not need to time the market in mutual fund SIPs because you are investing at various price levels.
  • SIP can help you take advantage of market fluctuations by averaging the investment cost. Rupee cost averaging can reduce the cost of acquisition in deep corrections or bear markets and can generate potential superior returns for investors in the long term.

Things to keep in mind for SIPs

  • You should start investing in mutual fund SIPs early in your working careers to maximize the power of compounding.
  • You should ensure that your mutual fund SIP is linked with your financial goals. But how would you know, what should be the SIP amount to reach your goal? For this, you should use a SIP calculator. You can enter the goal amount, investment period and the expected return and the SIP calculator will immediately show you the exact SIP amount. Example – your goal amount is 1 Crore, investment period 25 years and you assume 12% return. Once you input these figures, the SIP calculator will show the monthly SIP amount as Rs 5,322
  • You should be disciplined with your SIPs and continue the same till your goal is met.

Mutual fund investment is a great wealth creating option. Through SIP, you can reach your goals easily by investing in mutual fund schemes of your choice.
For more informative articles keep visiting Emu Article.

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