A SIP is an investment plan which allows investors to systematically invest at regular intervals. It allows the investor to have the choice of his regularity as monthly, quarterly or annually. There are various investment vehicles from which SIP investors can choose like ETF’s, Mutual Funds, Stocks, Gold funds etc.
How SIP works
As the name suggests, SIP is a method where an investor invests a fixed sum in a mutual fund at regular time intervals. An investor does not have the need to time the market when investing via SIP’s because timing the market doesn’t really help a SIP grow, whereas Investing regularly does. SIP’s are a great way to invest money provided, you ensure regular investments in the due time periods.
Here’s why SIP’s are a great investment option.
- A controlled and a self-governed way of investment.
- One does not have to keep a track of the market to invest. Timing the market doesn’t help SIP’s grow whereas investing regularly does.
- It allows you to choose how much you want to invest every month, making it easier on the investors pocket.
- If you start SIP’s early, you ought to get maximum benefits.
How to Maximize returns – here’s how you can maximize returns using SIP’s
- Make a list of your financial goals and start fulfilling them using SIP’s
- Identify which schemes of mutual funds would you like to invest in order to maximize returns.
- Starting early and investing regularly is the best way to maximize your returns.
- Invest in SIP in multiple schemes. This would also diversify your investments.
Advantages of SIP’s – the advantages of investing in a SIP are –
- Rupee cost averaging – when an investor invests using SIP in any investment vehicle, he qualifies to buy more stocks when the price of the investment is low, which subsides the average cost of the financial product over time. In long-term investments, Rupee cost averaging can take care of all the market ups and downs.
- The effectiveness of Compounding – When the value of an investment increase as the corpus along with interest grows as time passes, it is called compounding. The entire system of investment is based on compounding and because of that, it is a sure fact that if you start early and invest regularly, you ought to achieve the most out of your investment.
- Convenience – SIP allows investors to systematically invest their money at regular intervals without any hassle. SIP is one of the most hassle-free modes of investment.
Don’t stop your SIP when the markets correct
- Markets will correct many times in your investing life. behavioral finance studies have shown that it is at this time that investors stop giving checks towards SIP’s
- Most investors have strong and emotional biases creep in when markets correct.
- Investors start believing that the market trend would remain the same in the future and stop their SIP’s in assumptions. Do not stop your SIPs when the markets correct and you will be on your way to achieving your financial goal.
SIP’s are the best way of investment for people want to invest at regular intervals without any hassle and with utmost convenience as It allows the investor to have the choice of his premium to be as monthly, quarterly or annually.