How Does SIP Work? When to Invest in SIP ? Types Of SIP?Posted by MyFinopedia on August 15th, 2022 SIP Scheme is an investment option where instead of putting a lump sum amount into mutual funds, the investors can invest a certain amount of money in mutual funds over a while. The investors can start SIPs at just INR 500 per month. SIP returns help them to accumulate wealth over a large period. Once you apply for one or more SIP mutual fund plans, the amount is deducted from your registered bank account and invested in your mutual fund schemes. After making the first payment, you have the option to set the biller for auto-payments at the predetermined time intervals in the future. At the end of the day of the payments, the units of mutual funds are allocated to your account depending upon the NAV of the mutual funds. When to invest in a SIP? Types of Systematic Investment Plan (SIP) There are 3 types of SIP Schemes you can start- Perpetual SIP Top-up SIP Flexible SIP Benefits of investing in SIP Disciplined investment: SIPs allow you to make periodic investments in a scheme that helps you to accumulate surplus or plan out for future events like retirement, foreign trips, children’s education & marriage. These plans help people who aren’t well-versed in the financial world and don’t have enough time to analyze the market movements from time to time. You can simply consult your financial planner and choose the right SIP scheme suitable for your financial needs. The sum would get auto deducted from your bank account so you don’t need to worry about on-time payments. The rupee cost averaging factor: Every person who knows about the existence of financial markets is aware of its volatility. In SIP schemes, you make a fixed amount of investment each month into the schemes. Sometimes, prices are up or sometimes they fall. So, by making periodic investments you can reap the benefits of rupee cost averaging which allows you to take advantage of such volatility. In simpler words, you can buy more units when the prices are low and buy lesser units when the prices are high, thereby averaging out the value of each unit which lowers your average cost per unit. Power Of Compounding: To avail the benefit of the power of compounding one has to start early and invest regularly, a delayed investment will lead to a greater financial burden to meet the required goals, at an early stage a less investment is needed whereas more investment is needed at a later stage to accumulate the same planned corpus. Small amounts invested slowly over some time accumulate into a large corpus as the returns get compounded over the years. Like it? Share it!More by this author |