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What is a Systematic Investment Plan (SIP)?
A Systematic Investment Plan (SIP), often known as a SIP, is a service provided by mutual funds that allow investors to invest in a disciplined manner. A SIP allows an investor to invest a set amount of money in a mutual fund scheme and such at predetermined intervals.
It’s where you buy units of a Mutual Fund, index funds, or even an ETF via periodic intervals as per your time comfort and financial capability.
For example, Investing in a Mutual Fund on the 15th date every month for the next 15 years. If you invest Rs.15,000 per month the fund could give you a 15% Return on Investment each year. In 15 years, out of your total contribution of Rs.27 lakh, you’ll have a little over Rs. 1 crore in total value.
Equity funds’ returns may be superior to those of other asset classes. Although the market risk is greater, if you invest for a longer period of time (10 to 20 years), you can profit from stronger returns. So you can save for most long-term goals, like your kids’ education, a home, marriage, or retirement. Some funds have a history of outpacing inflation.
And if you also want to meet your future goals on schedule, it makes sense to begin investing in equity funds on a monthly basis. Additionally, if you invest in Equity Linked Savings Schemes (ELSS), you might get tax benefits on your investment.
How does SIP work?
The fundamental tenet of systematic investing is straightforward. It is based on the acquisition of shares or units of securities in a fund or other investment on a regular and recurring basis.
Rupee-cost averaging is the practice of purchasing the same set rupee amount of a security at each periodic interval regardless of its price. As a result, shares are purchased at varied prices and in varying quantities through some programs that allow you to choose a certain number of shares to purchase.
Due to the fact that the amount invested is often set and unrelated to unit or share prices, an investor purchases fewer shares when unit prices rise and more shares when prices fall.
SIPs are often passive investments, as once you contribute, you continue to invest regardless of how the fund performs. That is why it is critical to monitor the amount of wealth you accumulate in your SIP.
Once you reach a particular amount or approach retirement age, you may wish to reevaluate your investing strategy. By switching to an actively managed strategy or investment, you may be able to increase the growth of your money even more.
However, it is always prudent to consult a financial advisor or other specialists to identify the best course of action for you.
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Benefits of SIP:
You may start with a tiny amount, such as Rs. 500, and with a consistent SIP of Rs. 5000 each month for a period of about 20 years, you can accumulate a corpus of Rs. 1 crore. You can quickly compare several SIP plans and mutual fund portfolios online.
You may customize your portfolio based on your investment amount, risk tolerance, and the fund house’s previous performance. It is recommended that you choose a portfolio that generates an annual return of 12%; this will enable you to build a corpus of almost Rs. 1 crore in around 25 years.
Small scale Investing
The greatest aspect is that it is not necessary to invest a large sum of money, such as Rs. 20,000 or more, as is the case with other traditional investing techniques such as bank FDs and RDs, in order to collect a sizable sum.
If you intend to invest in mutual funds in order to become a crorepati, you may begin with a monthly SIP of 5000 and pick a longer duration to accumulate the requisite amount.
Additionally, you may use a sip calculator to determine the rate of return and projected corpus based on the investment amount and period. You can also invest Rs. 500 or Rs. 1000, but your investment duration will need to be increased if you intend to become a crorepati.
Automatic Investing
A Systematic Investment Plan (SIP) is one of the most effective strategies for instilling a saving mindset and discipline in investors, as the SIP payment is taken automatically from their bank account.
Due to the fact that the money is withdrawn from the investor’s savings bank account on a specified date, there is no need for the investor to remember the date or make the payment. It removes the possibility of losing out on SIP opportunities.
Additionally, it instills discipline in the investment strategy since you are investing a predetermined sum on a consistent basis, which aids in long-term wealth accumulation.
For instance, if you begin a SIP with a monthly payment of $5,000 for a term of 21 years and the payment date is the fifth of each month, Then, on the fifth of each month, the bank will remove the same amount, and you will receive an update from the fund house with your monthly SIP 5000.
Rupee Cost Averaging
SIPs employ the rupee cost averaging strategy, in which a fixed amount is invested on a regular basis for a certain period of time. Generally, we invest during bull markets and sell during down markets.
However, this should not be the case. Rupee Cost Averaging means that you buy fewer shares of an investment at high prices and more at low prices.
Because SIP is a monthly investment, part of the money is invested when the market is strong and some when it is weak, which gradually averages out the expenses because you earn more units in weak market conditions and vice versa, a process known as rupee cost averaging. Simply said, you won’t have to worry about market timing or swings.
Why Invest more than Rs.5,000 per month?
Saving should be done with a specific goal in mind and for a certain quantity. This will assist in amassing the necessary funds to accomplish a specified financial objective, such as a child’s education or retirement.
And, to begin with, ensure that you use the correct formula “Income minus Savings equals Expenses” and not the reverse. The majority of people spend their money and then invest the remainder. However, one should save first and then spend to guarantee that the goals are accomplished easily.
Saving Rs 5,000 per month in equity mutual funds can increase to almost Rs 50 lakh after 20 years at an expected growth rate of 12%. Rs 12 lakh will be your investment, while the remainder will be a profit.
Deposits of Rs 10,000 a month will make it more than Rs 1 crore when it comes time to pay off the loan.
Savings of Rs 5,000 or Rs 10,000 over a 25-year period can earn you almost Rs 95 lakh or Rs 1.9 crore, respectively, assuming a 12-percent growth rate.
However, before you begin investing, ensure that you have taken into account your inflated cost of objectives and the years required to reach them. For instance, after twenty years, you will want Rs 25 lakh for your child’s schooling. However, after 25 years, education costs may have risen to Rs 35 lakh.
If one invests Rs 3,000 per month for 30 years in a SIP, the maturity value will exceed Rs 1 crore. You may use any SIP calculator to determine the amount of money you need to put into SIP to achieve crorepati status. In addition, you can change the time period to figure out how many years it will take to become a crorepati.
Choose equity mutual funds as an investment vehicle because stocks have the potential to generate a high inflation-adjusted return over the long run. To establish a savings habit and minimize the temptation to time the market, it is recommended that you begin with SIPs in 2-3 mutual funds.
You need to make sure that they aren’t all the same in terms of market capitalization and industries, and that they have consistently outperformed their benchmark for a long time.
If you have not yet begun saving for your long-term goals, now is the time. The longer you wait, the more money you will need to invest. By starting early, you may save less and leverage the power of compounding in the long term.
10 Best SIP Plans in Equity & Debt Funds:
| Fund Name | 5 years Return | 3 years Return |
|---|---|---|
| TATA Digital India Fund | 35.52% | 41.48% |
| ICICI Prudential Technology Fund | 33.91% | 41.39% |
| Quant Infrastructure Fund | 24.14% | 38.02% |
| Axis Focused 25 Fund | 17.19% | 16.64% |
| HDFC Balance Advantage Fund | 15.50% | 16.60% |
| TATA India Consumer Fund | 15.10% | 14.70% |
| DSP Equity Fund | 14.36% | 14.69% |
| ICICI Prudential Multicap Fund | 13.62% | 16.68% |
| Kotak Standard Multicap Fund | 13.24% | 11.14% |
| Axis Bluechip Fund | 11.30% | 18.30% |
Where can I Invest Rs.3,000 per month?
If you wish to Invest via SIP mode but for one reason or another couldn’t afford to spare Rs.5,000 per month. Then the following list of Options allows you to Invest less than Rs.5000 per month.
To make things easier for you, we’ve compiled a selection of some of the top SIPs for Rs.3,000 per month in a variety of asset classes that can assist you in meeting your long-term goals. The following are some of the greatest drinks for Rs.3,000 per month in various categories:
[List not in any order]
- L & T Midcap Fund Growth
- DSP Equity Opportunities Fund Growth
- Aditya Birls Sunlife Tax Relief 96
- Nippon India Large Cap Fund Growth
- SBI Bluechip Fund
- HDFC Small Cap Fund
- Aditya Birla Sunlife Growth
- Nippon India Equity Hybrid Fund
- L&T Emerging Businesses Fund Growth
- DSP Equity Opportunities Fund
Where can I Invest Rs.1,000 per month?
New and inexperienced investors sometimes delay investing until they have accumulated a particular quantity. This decreases their opportunities to profit from the current market. With SIPs starting at as low as Rs. 1000 per month, you should ideally begin saving immediately and then increase your investment as your income increases.
The following table summarises the finest SIP plans that demand a monthly contribution of Rs. 1,000 along with information about the fund’s kind and risk profile.
[List not in any order]
- Kotak Opportunities Fund
- Mirae Asset Tax Saver Fund
- Invesco India Liquid Fund
- ICICI Prudential Liquid Fund
- ICICI Prudential Blue Chip Fund
- Nippon India Large Cap Fund
- Nippon India Liquid Fund
- Motilal Oswal Focused 25 Fund
- SBI Flexicap Fund
- Aditya Birla Sun Life Digital India Fund
Conclusion:
Mutual fund systematic investment plans (SIPs) might be an excellent investment option. Individuals seeking long-term investments might consider investing in equity-based mutual funds via the SIP approach.
SIPs are ideal for investors that wish to automate their investing strategy. In this manner, the individual has the fewest concerns. Simply begin your SIP with an “excellent mutual fund” and the balance will take care of itself.
However, the primary issue is that the term “excellent mutual fund” is just too broad. How can an ordinary guy distinguish between good and bad funds?
SIPs can provide a conduit for young investors to market-linked assets. These plans are appropriate if you want to reduce your exposure to market risk while still earning a high rate of return.
Additionally, you can diversify your assets to mitigate risk. With SIPs starting at just Rs. 1,000 per month, you may take advantage of market-linked financial instruments’ strong returns.
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Disclaimer: All the information on this website is published in good faith and for general information purposes only.
