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A comprehensive guide to SIP or systematic investment plan

One of the most effective ways for achieving your financial goals is with the help of SIP. Even if you seek services of the financial advisor, he will emphasise on the importance of SIP. This type of investment plan has numerous advantages, most important among them being inculcatingfinancial discipline in you. 

A comprehensive guide to SIP or systematic investment plan

Monday July 23, 2018,

4 min Read


Understanding the concept of SIP

SIP stands for the systematic investment plan. As per this planning, you can invest some amount of money in the financial market on a regular basis. The amount of money invested, depends upon the corpus required to fund your goals and the amount of money you can afford to invest. It lets you invest in the mutual fund markets, giving you a lot of flexibility.

For making investments in mutual funds you must take expert help. These experts will take into account the market situation and will invest the amount only in the best instruments. With SIP, you will get the advantage of rupee cost averaging and the option to withdraw the money at a later stage (whenever required).

The importance of investing in SIP’s on a regular basis: Financial discipline and the habit of saving early in life are very important. You must keep in mind that emergencies can strike anytime. In such situations, if you do not have any savings then the only option left is that you have to borrow money and pay interest on that money. This will naturally put a financial burden on you. On the other hand, if you keep investing on a regular basis then you will have enough savings and will be able to manage these financial emergencies with ease.

Who can opt for SIP? : Anyone can invest in mutual funds via SIP. Keep in mind that SIP Investment is not advantageous to just a few people. Those who have business must opt for SIP. These people do not have any fixed regular income. Their income keeps fluctuating. Also, there can be up’s and downs in business. So, investing and saving money is important.

Working professionals need to save money for their retirement. Also, these days’ layoffs are becoming very common. A person can lose his job anytime. So having enough money is important. SIP gives the person the option to change the amount of SIP investment depending on the financial situation

The advantage of investing via SIP’s than via individual stocks: Many people feel that investing your additional money in the stock market is one of the best ways of making money. But one needs to keep in mind that the person will get money depending on the stock prices at a particular time. It is not possible that you will always get the stocks at low prices and will be able to sell the same at a high price. So there is no guarantee as such that you will always earn money from individual stocks.

In case of SIP, you are investing on a regular basis in different financial instruments. You will naturally generate money from these savings on a regular basis. Remember one thing that you all always have a better chance of getting better and consistent returns from SIP in the long run. The same will not be possible in the case of individual stocks.

Reasons that make SIPs better as compared to lump sum investments: Lump sum investments are always risky. There are chances that one wrong move and you will end up losing all your money. In the case of SIP, you are buying different financial products and you are making regular investments. You are going to get regular returns. In the case of lump sum investments, there are cases where people have bought stocks at a very high price and then they have not got the appreciation for the same.

Keep in mind that the markets are always volatile: Remember that markets are always unpredictable. Several factors will affect the market. When you select SIP you will be able to handle this market volatility effectively. You will be able to buy instruments when the prices are low and can get good returns when the markets are doing well.

Understanding the concept of Rupee cost averaging in SIP: You will invest a fixed amount of money in mutual funds on a regular basis. For the high prices units, you will get a few units and vice versa. This helps the investor remain free from any financial burden.

The major advantages of SIP: The investor can invest small amounts at regular intervals. He can customise the plans as per his needs. The risk factor gets reduced. You will get better returns. You are better equipped for financial emergencies. It gives you flexibility, convenience, tax benefits and it inculcates financial discipline.

If you too want to make investments in SIP’s then the best way to do it is by taking the services of a good financial planner.