Systematic Investment Plan, commonly abbreviated as SIP is a strategy where one can invest a certain amount of money at regular intervals of time and benefit the cost rupees averaging without getting affected by the market levels.
Courtesy of various myths floating in the market; people have been apprehensive about using it. This guide will bust the most common misconceptions and glorify the advantages of making use of this investment method.
- SIP is a method of investing, not an investment
People often tend to confuse SIP with mutual funds. While the mutual fund is an investment, SIP is the means to invest in them. SIP allows you to buy units on a set date every month, enabling you to implement a saving or investment plan for yourself. After you have decided on the mutual fund scheme you want and the amount to invest in every month, you can either furnish post-dated cheques or ECS instructions and the investments will be made under your name every month.
SIPs can be availed for both short and long terms. You can opt for short-term investments for say two or three years and benefit the rupee cost averaging by investing in a disciplined manner and fulfill your short term needs. But long term regular investments can return greater benefits due to the power of compounding.
- They are for small investors
SIP is a convenient means for investment and wealth creation. Many people believe that it is a tool for small investors only. SIP is just a concept and hence does not have any limitation on some investments made by you. Irrespective of the amount you decide to invest, you are just averaging your per unit cost of investment. The returns which you will receive will be in percentages and will benefit you according to the proportion of your investment.
Whether you decide to invest INR 1,000 or INR 50,000, Rupee Cost Averaging works alike for all the amounts, and you will reap the benefits of SIPs based on the amount you have invested.
- One cannot invest lump sum in it
Many of the investors assume that they cannot invest a varying lump sum amount in the same fund and have to maintain separate accounts for the SIP investments. SIPs are just a mode of investments. If you have been investing an amount of say INR 1,000 and you receive a surplus of say INR 10,000, you don’t need to make separate SIPs amounts for it and can invest whatever surplus amount you have in the same account.
- SIP should be commenced when market is high and stopped when it goes low or vice versa
SIP is a method to average the cost of your investment through the volatility of the market in which you are investing. You should never ponder over when to start, but on the amount of tisme, you have to utilize the investment plans. Markets may fluctuate during the tenure of your SIP, but when you first start off, you would not know the market behavior throughout the tenure of your installments. Hence, stay away frominvesting in sinking market trends and invest for a longer term to reap the benefits of cost averaging.
You can visit https://www.upwardly.in/sip-calculator to calculate your SIP investment.