What is SIP?

Over the last few years, investments in mutual funds have seen a steady increase. Professional fund managers manage mutual fund schemes ensuring the best investment decisions. Additionally, mutual funds help in portfolio diversification while mitigating the risks of investing in direct equities. The aforementioned benefits have increased the popularity of mutual fund investments. A common mode to invest in mutual funds is via systematic investment plans, commonly known as SIP.

What is a SIP (systematic investment plan)?

In a SIP, you invest a predetermined amount at regular intervals in your chosen funds on a predetermined date. It allows you to invest as low as INR 500 over your investment horizon to avoid financial distress while maximizing your benefits.

What are the benefits of SIP?

SIP or systematic investment plans have several advantages. Here are seven such benefits of SIP:

1. Brings about financial discipline

2. Easy on your wallet

3. No need to time the market

4. Rupee cost averaging

5. Gives the benefit of power of compounding

6. Flexible

7. Can be customized

Financial discipline

A systematic plan ensures you save a certain amount at a regular interval. You may invest monthly, bi-annually, or annually as per your convenience. Therefore, a systematic plan instills financial discipline, which is an important factor when you want to build wealth in the long-term.

Easy on your wallet

You may start a systematic investment plan with as less as INR 500 per installment. Therefore, saving and investing in such plans is not limited only to investors with higher income. The smaller amount ensures you have no financial difficulty or liquidity crisis while investing for capital growth.

No need to time the market

If you invest in equities, you may need to wait until there is some market correction and stock prices see some reduction. Alternatively, you may prematurely exit your investment in case market conditions become unfavorable. Timing the market to maximize profits is almost impossible. A major benefit of SIP is that it overcomes this need to time the market to earn higher profits. This is what makes SIP a favorite investment plan for beginners.

Rupee cost averaging

A specified amount is periodically invested in your chosen funds with SIPs. Therefore, when the underlying asset prices are higher resulting in an increased Net Asset Value (NAV), you are able to accumulate a lesser number of the fund units. On the other hand, when the prices are lower resulting in a decreased NAV, you are able to acquire a higher number of units. Therefore, this averages the cost of your total investments through rupee cost averaging.

Power of compounding

When you invest in a mutual fund SIP, you are able to benefit from the power of compounding. When you remain invested for a longer period and earn profits on your returns, your wealth starts growing through the compounding effect. Therefore, a regular small investment held for a longer period allows you to build a larger corpus that may be used to meet your financial goals.

Flexibility

You may choose the amount and the periodicity of your systematic investment plan. Furthermore, you may start or discontinue these systematic plans as per your choice and requirements. Additionally, systematic plans are flexible because you may increase or decrease the installment amount based on your financial situation.

Customization

You may choose for step-up plans, which periodically allow you to increase the installment amount. Alternatively, you choose alert systematic plans. Such options send an alert to enable you to buy more units in case the market prices are down. You may also choose a perpetual systematic plan that does not have an end date to your investment.

How to start SIP online

Now that you know what is a SIP, you might be wondering how to start a SIP online. Starting a systematic plan is very simple and the entire procedure may be completed online.

Here are the steps to follow to start a SIP online:

Complete the Know Your Customer (KYC) formalities and an in-person verification Ensure that you have an online transaction account to start a systematic plan in your chosen mutual funds Choose your SIP scheme Be sure to input the date and amount before submitting the request To make the procedure more convenient, you may provide an Electronic Clearing System (ECS) instruction to your bank. This automatically debits the installment amount from your bank account on the chosen date ensuring you do not forget to invest.

You may start investing in one or multiple mutual fund. However, with a large number of available options, making the right choice may be difficult. The proprietary ARQ investment engine in Angel Bee’s mobile application helps you make the right investment decision. This engine uses quants and algorithms to analyze a billion data points in order to provide you with customized recommendations that match your requirements and risk profile. Download the Angel Bee mobile app and start your systematic plan today.