How to invest in SIP for Beginners ?
SIPs or systematic Investment plan has emerged as one of the most favored ways to invest among the population of India. The idea behind SIPs is simple yet powerful: The fully paid discount bonds have the greatest return to investors who take a small amount of money every month and invest it in mutual funds. In India, SIPs have brought financial markets into the realm of the masses so one can reliably invest and build wealth with a certain discipline. This guide looks at various aspects of SIPs, their benefits, and the position they occupy in Indian investment space as well as how they can fit into different types of goals.
What is SIP : Sip Investment Full Form ?
SIP actually means Systematic Investment Plan and it is a process by which an investor invests funds on a regular basis and this base may be weekly, monthly, quarterly or even yearly. The biggest advantage of investing through SIPs is that contrary to what many get busy trying to get into or out of markets at the right time it lets the common man invest in equities every month without a bother.
In India, SIPs are normally linked with equity mutual funds which invest in shares of different companies. However, they are also applicable on debt funds, hybrid funds and other types of mutual funds. The greatest advantage of SIPs is that it gives people an opportunity to opt for more units than when the prices are high and fewer units when the prices are low, generally known as Rupee Cost Average.
Investment in sip is good or bad
SIPs can have better long-term returns in comparison to FDs, where generally fixed returns are provided, though the growth is low. However, it is to be remembered that there are always chances of risks involved when mutual funds are invested via SIP, as they are market linked.
The popularity of SIPs in India :
Affordability: SIPs makes it possible for investors to invest with large amounts of money since they begin with small investments. Most of the SIPs can be started with as low amounts as ₹500 meaning people from different income levels can take part in it.
Convenience and Flexibility: SIPs ensure the investment process is mechanically executed so that investors cannot deviate from the financial plan without external influence. Furthermore, there is flexibility to pause, increase and decrease the SIPs depending on the investor.
Long-term Wealth Creation: Longer term investing has however been immensely rewarded by SIPs largely due to the compounding effect. This makes them the perfect vehicle for wealth creation and other financial needs such as retirement, educational expenses or home purchase.
Tax Efficiency: SIP offered in Equity Linked Savings Schemes (ELSS) are tax saving instruments as per section 80C of the Income Tax Act for an investment of up to ₹1.5 lakh per year.
Accessibility: Now that everyone is switching to the online platform, investing money in SIPs has also become less complicated and investors can begin investing with a few clicks on their mobile phones.
Benefits of SIP Investment
Rupee Cost Averaging: SIPs offer one of the biggest advantages: it is the rupee cost averaging. Due to the fixed investment amount investors acquire large quantities at low price and vice versa at high price. This takes the sting out of market fluctuations and also enables the average price for a share to be spread over time.
Power of Compounding: SIPs allow the concept of compounding to happen because the surpluses earned are reinvested for more returns. In the aggregate, it means that over the course of several months and, more so, years, this kind of effect leads to exponential accumulation of funds.
Discipline and Regularity: SIPs makes the investor develop a good spending habit in terms of investments. It is easier to practice good habits financially if there has been a cycle of investment made over time in future goals.
Low Entry Barrier: Everyone has walking access to SIPs and can accumulate as much money as they wish. Due to this they are considered to be suitable for relatively small investors who would like to enter the equity markets slowly.
Flexibility and Transparency: SIPs are highly flexible. SIPs can also be easily boycotted or put on hold by investors, alter the rate or the time period, or even exchange the fund. Many mutual fund companies give accurate disclosure of the performance of the mutual funds, cost, and other essentials to make the investors informed.
Goal-based Investing: It is usually applied to specific projects which may include; Education expenses for children, Retirement, or purchase of a house among others. It enables the investors to associate investments with goals in a way that enhances both continuity and accountability.
Types of SIP's
SIPs have thus grown to meet different investor needs in India. Here are some popular types:
Regular SIP: It is the most frequent kind in which a certain sum is given periodically towards an investment.
Top-up SIP: In top-up SIP, investors are allowed to invest additional regular monthly installments, in a fixed percentage or amount to take benefit of better gains or other opportunities in the market.
Flexible SIP: With this kind of SIP, the investor can change the amount he wishes to invest at any given time and this makes it convenient for the investor to invest depending on his current cash position.
Perpetual SIP: There is no fixed tenure for a perpetual SIP where people can choose to start investments and continue investing until they wish to stop.
Trigger SIP: This type can let the investors define certain parameters, for example, market levels or certain dates, at which money can begin to be invested. But, it is not so frequent because to do it you should read and know something in the market.
Tax-saving SIPs: ELSS SIPs are for tax save under section 80C and the lock in period is three years.
SIP Vs Lump Sum
While investing, investors always think whether it is better to invest in sip or in lump sum? While both approaches have their merits, SIPs offer unique advantages:
Risk Mitigation: SIPs also minimize the risk by diversification since investment is made on a monthly basis in the stock market.
Convenience: As for the infrastructure, SIPs also can’t be funded using a lump sum and that makes them more suitable for people with fixed salaries.
Consistency: SIPs also have multiple benefits as it provides the investor an opportunity to continuously build their position in the stock without having to search for the right investment time in the market.
On the other hand, a lump sum may be advantageous in the situation when the investments have to be made during a bear market since more money invested at one time may generate more points to gain if the market goes back up thereafter. But for the general organized investor, SIPs come in as a safer and more practical form of investment.
Importance of SIP in Financial Planning
SIPs are a very important tool in the financial management of Indian investors. Since, the Indian population is young with increasing income levels, SIPs can act as a tool of wealth creation in the long run.
Here are ways SIPs contribute to effective financial planning:
Retirement Planning: SIPs are best suited to the retirement planning scenario particularly when the investor is relatively young and hence enjoys a longer period of compounding. Equity mutual funds through SIP can create tremendous wealth in the long run of thirty or more years.
Education and Marriage: SIPs have appealed to parents who are saving for their children’s education and marriage. Since education, marriage and other related expenses are large in the long run, SIPs provide a regimented mechanism to build the money.
Down Payment for House: Most people will save with SIPs to raise money for a down payment for a house. As the real estate prices are increasing over the period, the disciplined approach through SIPs creates a corpus for future use for home buying.
Emergency Fund: On the SIPs, liquid funds or short term debt funds can be used in cases of emergencies and so on. Though they are not considered very rewarding investments, they give easy entry into cash in emergencies.
Growth of SIPs in India
The trend shows that the Indian mutual fund industry grows in Systematic Investment Plan (SIP) investments at a faster trajectory. (Source : AMFI) The graph depicting the monthly SIP investments showed that SIP accounts have been on the rise and the monthly SIP inflow touched the record level.
Several factors contribute to this growth:
Awareness and Financial Literacy: In the last few years several mutual fund companies, banks and government have launched awareness programs about the viability of SIP investments.
Digitization and Ease of Access: Due to increasing establishment of rsp, the digital platforms, mobile apps, and online investments have made SIPs much more convenient.
Millennial Participation: Special claim has been made about generational shifts about today’s youths trusting stock and mutual fund investment rather than mere saving accounts investment. SIPs offer a perfect opportunity for the millennials to invest and create wealth without the need of deep pockets.
Regulatory Support: SEBI has undertaken several measures to increase transparency, safeguard the investors and boost the mutual funds industries.
Risks Involved with SIP
While SIPs offer numerous benefits, investors should be aware of potential challenges:
Market Risk: Investors in SIPs of the equity mutual funds need to bear the risks associated with the decrease in the market for mutual fund options.
Long-term Commitment: Like many other franchises, SIPs can only give positive results if investors make long-term investments in order to reap big. It is wrong that if investors pull out their money early enough they may lose on compounding returns.
Fund Selection: The choice of a mutual fund is therefore important because the performance of an SIP largely lies in the mutual fund. Currently, investors have to expend time and energy to either read fund literature or seek advice from professional financial advisors before arriving at their investment decisions.
Costs and Fees: While on the convenience side, some SIPs might charge high expense ratios or may include exit loads that may reduce returns.
How to Invest in SIP for Beginners
Set Financial Goals: Identify what you invest for, whether you are investing for retirement, your children’s education or for wealth creation purposes.
Choose the Right Fund: Speaking specifically for rookie investors, always select a mutual fund that has been consistent with your desired objectives such as your risk profile, investment duration, and the money you wish to invest.
Open an Account: If you have no account through which you can invest in mutual funds, it’s easy to make one with a mutual fund company or any online platform that is registered to offer investment. You would also have to go through some formality of the KYC (Know Your Customer) process.
Decide the SIP Amount and Tenure: Determine your investment goals, this is the amount you are willing to put as investment and for how long the investment will take. Normally, it is recommended that one invests an amount that he or she can afford not to lose.
Automate the SIP: Connect with your bank account, so you can set up an automatic payment monthly. Nearly all platforms have mechanisms that enable users to options that prevent them from missing installments.
How to Invest in SIP without Broker
SIP investment without a broker is very easy and cheap Compared to trading on the stock exchange without a broker. An SIP means Systematic Investment Plan, where a person can invest a fixed sum in a mutual fund every month or so as per his choice so it is good for disciplined investment and rupee costing average. Here’s how to start SIP investing directly:
Select a Mutual Fund and Visit the AMC’s Website: Select a mutual fund of your choice by considering the objectives and your ability to bear risks assigned on investment. To obtain more detailed information about the chosen fund, it needs to be visited the official website of the AMC.
Complete e-KYC: You can finish the Know Your Customer (KYC) process at the comfort of your home by uploading your PAN card, Aadhaar card or any other details as may be required by the bank. This is an initial procedure and could be performed on most of the AMC online interfaces only once.
Register and Set Up an Account: To donate one needs to signup on the website or through the mobile application of AMC which normally takes name, date of birth and bank details for transfer of funds.
Initiate the SIP: Having created an account you can begin an SIP by opting the quantity investment, frequency and date. Invest with minimal fuss by creating an automated bank transfer known as the ECS mandate.
Track and Manage: Besides, it gives you an opportunity to track your investments and returns and change the SIP amount or frequency on the AMC’s website.
Buying directly from an AMC eliminates the cost of brokerage and gives the investor total discretion over specific stocks.
Conclusion
SIPs have revolutionized the Indian investment map by offering easy, systematic and elastic wealth generation platforms. SIPs can be safely said to provide retail investors with a relatively safe mode of entry into the equity markets whilst having the added corollary of RCAs and compounding. For anyone interested in investing their money, whether it is a first investment or additional investment, SIPs are a part of your investment plan. That is why, comprehending the peculiarities of SIPs, their benefits and drawbacks, one can act only in the investors’ interest and go for their individual long-term goals.
Therefore, as the overall financial environment in India changes and more educated people in terms of financial matters are being produced, the importance of SIP’s cannot be underestimated. This powerful investment vehicle is capable of empowering millions of Indians by providing financial freedom and education leading to consistent wealth creation generation after generation.
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FAQ'S
What is SIP investment ?
It means Systematic Investment Plan. The process of investing in mutual funds where one invests a certain amount on a fixed periodic basis, what could be monthly, quarterly and so on. This compulsory style assists to assemble riches over time that involve compounding and preserving the average of the market unrests.
How to invest in SIP for Beginners ?
To start SIP investments:
- Therefore, one should use reliable mutual fund given the financial goals it has set.
- Next consider the amount of capital you are willing to use on a monthly basis as capital.
- Link your bank account in order to establish a SIP with a mutual fund provider or any online investment site. For starters, one can contribute little amounts then as he or she gains expertise, bigger amounts can be contributed.
investment in sip is good or bad ?
Investing in SIPs is generally a good approach since it aligns with dollar-cost averaging, helps people to save money systematically and minimize the danger of buying at wrong time. But it’s again important to buy quality funds and do it in the long run. SIPs are most suitable to those who have long term investment plans and not those who wish to get rich quick.
how to invest in sip without broker ?
Yes, you can invest in SIPs directly without a broker:
- Direct Investment: KYC is mandatory for all investors; you can fill in the particulars when you visit the mutual fund’s website.
- Apps and Platforms: Some of these popular online platforms to invest directly in mutual funds are: Zerodha Coin, Groww, Paytm Money etc.
