The Systematic Investment Plan (SIP) is a type of investment in which the investor selects a mutual fund based on their preferences and routinely contributes a set amount of money for the same. A SIP employs the idea of incremental investments over time as opposed to making a large investment all at once.
Based on their preferences, needs, and financial objectives, investors can invest any amount of money, from a small sum to a large sum, using the Systematic Investment Plan, which is a brilliant method of investing.
What is SIP?
An investment strategy for mutual funds called a Systematic Investment Plan (SIP) allows investors to make periodic, automated contributions on a regular basis. To assist you in achieving your long-term financial goals, you can plan your investments using SIPs. The way to do this is to choose a mutual fund scheme and decide on the target amount and the amount you want to invest on a regular basis.
Take a Rs 1000 monthly investment for five years, for instance. For the specified period, you can automate your contributions by setting up a SIP with a mutual fund. You may also decide how frequently to contribute. SIP mutual funds typically allow investing on a weekly, monthly, quarterly, semi-annual, or other schedule.
It’s also crucial to comprehend what SIP means in terms of mutual funds because it’s only a way to invest in mutual funds rather than an asset in and of itself. Any contributions you make to your SIP will be invested according to your preferred mutual fund strategy.
How does SIP Work?
There are a few fundamentals about how SIP functions that you must understand before configuring your sip mutual fund.
- Selecting a mutual fund scheme
Selecting a mutual fund scheme to invest in is the first step in the SIP investment process. Read through our guide on how to choose a mutual fund if you need assistance selecting a mutual scheme.
- Selecting an investment frequency
Selecting an investment frequency that feels comfortable to you is the next step in your sip mutual fund investment journey. The most popular option, especially for investors who are salaried because that is how often they get paid, is a monthly frequency. Although you can choose to invest weekly, quarterly, semi-annually, or annually if you have good reasons to do so.
- Organise a SIP through a mutual fund programme.
After selecting a mutual fund, setting up your SIP is a straightforward process. Choose your mutual fund. Complete your KYC, enter your bank information, choose your SIP contributions, and frequency if you’re a first-time investor, and you’re done. In a subsequent section, the procedure has been thoroughly illustrated.
- Automatic debits and NAV-based unit allocation
Following setup, funds will be deducted from your designated bank account. Depending on the date you chose when configuring the Sip mutual fund, it will be debited each month. This operation is automated. Based on the frequency you specified when setting up the SIP, money will continue to be taken out of your bank account.
You’ll receive notification of the investment of your funds shortly after the money has been debited. On the basis of the NAV (net asset value), the acknowledgement also lists the number of units you have been given. Due to the daily changes in the NAV, the number of units allocated for each contribution may vary.
What Are the Benefits of SIPs?
SIPs offer a variety of benefits to investors of all ages and risk tolerances. Some of the most noticeable advantages of sip mutual fund plans are listed below:
- Rupee-cost averaging
Since it is unnecessary to time the market, it is one of the most obvious advantages of SIPs. By placing bets based on fleeting market fluctuations, investors attempt to time the market, but because they lack experience, they often lose money. Since a fixed sum is invested at regular intervals regardless of the state of the market, SIPs eliminate guesswork. You receive more units for your investment when markets are down and, as a result, a mutual fund’s NAV is low; conversely, you receive fewer units when markets are up. Your average cost per allocated unit decreases as a result over time.
- Professional management
Experts with a track record of success managing portfolios oversee mutual funds. They also have a group of research analysts available to them who keep an eye on the markets and assess investment opportunities. Since the sip mutual fund investments you make are in mutual funds, you gain access to their knowledge. For someone who is unfamiliar with the markets or financial terminology, this is especially crucial. Allow a professional to manage your money instead of putting your money at risk. In essence, SIPs give you the opportunity to delegate your investment knowledge to a fund manager, who will oversee the assets of the mutual fund and manage them to maximize returns for investors. The situation benefits both parties.
- Financial Discipline
Some people may decide to upgrade their lifestyle as a result of an increase in income. The more prudent people typically act in the opposite way; they spend their savings after investing. Due to your commitment to making a predetermined monthly investment, SIPs can help you develop this discipline. Additionally, you don’t have to exert any additional effort to make monthly contributions. Each month, the funds are automatically deducted from your registered account. Compounding causes the modest contributions to accumulate into a sizable sum over time.
- Power of compounding
Particularly in the context of Systematic Investment Plans (SIPs), the power of compounding is a key concept in investment. SIPs are a well-liked investment strategy in which investors put a set amount of money into mutual funds on a recurring basis over a protracted period of time. Let’s investigate how and why the power of compounding benefits SIPs.
In plain English, compounding refers to earning returns on both the initial investment and the returns that have accumulated over time. Over time, it enables exponential growth of your financial resources. The following are a few of the numerous ways that the power of compounding can affect SIPs:
Which Are the Best SIP Funds?
- Quant Tax Plan Direct-Growth
A mutual fund scheme for equity investments called Quant Tax Plan Direct-Growth was introduced by Quant Mutual Fund. The Best Mutual Fund for SIP in India is regarded as this one.
Investing primarily in equity shares with growth potential will help the scheme achieve its goal of capital appreciation. Dividends and other forms of income are the secondary goal.
- Quant Infrastructure Fund Direct-Growth
One of Quant Mutual Fund’s equity mutual fund programs is called Quant Infrastructure Fund Direct-Growth.
It is the Best SIP to Invest In 2023 because the fund seeks to invest primarily in equity and equity-related instruments of infrastructure sector companies.
- BOI AXA Small Cap Fund Direct-Growth
An equity mutual fund program called BOI AXE Small Cap Fund Direct-Growth dubbed the Best SIP Plan, was introduced by BOI AXA Mutual Fund.
The investment strategy of the scheme focuses primarily on equity and equity-related securities of small-cap companies in order to produce long-term capital appreciation.
- Edelweiss Government Securities Fund Direct-Growth
One of Edelweiss Mutual Fund’s debt mutual fund programs is called Edelweiss Government Securities Fund Direct-Growth.
One of the Best SIPs, its primary investment goal is to generate income through investments in short-term debt instruments and the money market.
- Direct-Growth Debt Fund with HDFC Credit Risk
One of HDFC Mutual Fund’s debt mutual fund schemes is the HDFC Credit Risk Debt Fund Direct-Growth.
By primarily investing in AA and lower-rated corporate debt, the scheme aims to generate income and capital appreciation.
- ICICI Prudential All Seasons Bond Fund Direct-Plan-Growth
ICICI Prudential Mutual Fund introduced the Debt Mutual Fund Scheme ICICI Prudential All Seasons Bond Fund Direct-Plan-Growth.
By making investments in a variety of debt and money market instruments, the scheme hopes to make money. Furthermore, the plan seeks to keep the ideal balance between yield, safety, and liquidity.
- Quant Multi Asset Fund Direct-Growth
This hybrid mutual fund program was introduced by Quant Mutual Fund as Quant Multi Asset Fund Direct-Growth.
By purchasing instruments from all three asset classes, the scheme hopes to produce income and capital growth. Equities, debt, and commodities.
Beginning a SIP could be among the most fruitful steps in your investment journey. It gives you a great deal of flexibility and cuts down on the time and work you’d otherwise have to spend managing your investments. Now is a good time to start your SIP if you’re young. Time is on your side, so take advantage of it.
We also provided a list of the top mutual funds for systematic investment in 2023. Any time can be a good time to start a systematic investment plan, which will choose the best scheme plan for the investor based on their risk-return profile.
Investors must pick a strategy that will support them in achieving their long-term objectives and achieving their financial goals.