Systematic Investment Plan (SIP) is an intelligent way to plan your investments in mutual funds in order to minimize risk and ensure your capital keeps growing. Here you have to make regular investments at uniform interval (i.e Weekly, Monthly, Quarterly). SIP enables you to invest a pre determined sum at periodic interval. Thus the savings you make translates into investments and the capital appreciation could be achieved. You can start investing with a minimum of Rs 500/- and saves you of the burden of investing a lumpsum into the fund.
This is a very easy and flexible investment option as you have the option is instructing your bank for Auto Transaction. This helps to auto debit the determined amount to the Fund on the date instructed and again auto credit the Investment at the time of redemption of the fund. The allocation of the units in your Fund is based on the prevailing market value which means the Net Asset Value (NAV). With the changes in the market situation the NAV also changes and thus the Units allocated to your fund will also differ. It the market is on the high the NAV will be high resulting in less number of units being allocated as the sum invested periodically remains the same and vice versa in case the market value falls. However as the investment is spread out over a period of time the fund averages out and eventually gives positive returns. Thus it is able to make the most of underperforming market by adding more units to your kitty whereas; when the market is good the NAV goes up thereby increasing the valuation of your funds.
Features of SIP which makes it attractive Investment option:
Ease of Investment: Since the minimum amount which can be invested is as low as Rs 500/- (no upper limit) it is easy for anyone to invest in this scheme and accumulate handsome return over a period of time.
Good Rate of Returns: Over the years it has been seen that the rate of return is one of the best in mutual funds and it is really a good investment option as far as wealth appreciation goes. Since it is market linked it performs well over longer duration and return is better than other fixed return investment products which carry very modest returns.
Power of Compounding at Work: This is one of the most important features of any investment. The compounded rate of return is something which financially helps us to attain magical figures which otherwise would not have been possible. Let’s see an example to understand this:
Suppose you have started investing on your 30th birthday with a sum of Rs 1000/- on a monthly basis and you continue with your investment till the age of 60 then it means your principal amount invested stands at Rs 3,60,000/-. Now suppose you earn an modest return @ 8% p.a on the Principal even then the investment will stand handsomely at Rs 15,00,000/- at the time of redemption.
Inculcate Saving Habit: Since you have to make periodic investments you will plan your finances better and develop the habit to save which would be very beneficial for future plans and management of personal funds.
Flexible Investment: SIP makes investment very flexible as there is no point of entry and no compulsion of exiting from the investment. You are also free to increase or decrease your investment as and when you feel like doing so.
It is a very good investment option of all classes and each one can reap good returns on investment. I will be soon posting weekly performance report of some of the top performing Mutual Funds so that you can keep a track of them.
Read about different types of Mutual Fund Investment. Types of Mutual Funds