A systematic Investment Plan (SIP) is a plan that allows investors to invest a minimum or predetermined amount on regular intervals either weekly, monthly, quarterly, annually, etc. in a mutual fund scheme. The minimum amount the investor could invest in SIP may vary from one fund house to another, which is from one scheme to another scheme.
Types of SIP
SIP are of 4 types - Flexible, Top-Up,Trigger & Perpetual SIP.
Flexible SIP
It offers the option of changing the investment amount based on investor cash flow. So the investor can adjust the installment amount until they get better financial situations.
Top-Up SIP
It allows the investor to enhance the SIP amount at regular intervals, in this way investors can make the most out of their SIP investments with the increasing contribution towards the schemes.
Trigger SIP
It is suitable for the investor with good knowledge of financial markets. In this case, an investor can set a target depending on a pre-specified date, NAV, price, etc,
Perpetual SIP
SIP without a tenure end date. This is for the investors who are too busy, this scheme continues regularly, it will only be stopped if the investor gives the written communication t stop it.
How Does SIP Works
SIP provides long-term benefits, once the investor chooses SIP, the money will be automatically debited from the account and will be added to the SIP Scheme based on the investor choice Investor will be allocated with net asset value for a day. Every time money invested by the investor allows gaining units at the market rate that will be added to your account. SIP allows purchasing units at different rates, to fetch the advantages of rupee-cost averaging and power compounding.
Benefits of Systematic Investment Plans(SIP)
SIP allows investors to profit from the compounding returns in the best way.
Disciplined Savings
SIP allows you to save regularly and make you reach the financial objectives.
Convenience
Saving through SIP is the easiest way you can invest without any hassle through your bank.
Rupee Cost Averaging
Investors can gain more units or stocks when the market price of the investment falls down. Which will lower the average cost of buying financial assets over time.
Benefits of compounding
Small amount savings via SIP at regular intervals will in return givers you in a large return. By the power of compounding, investor interest earns furthermore interest, which allows investors to gain a substantial amount of wealth.
FAQs:
What is the benefit of a Systematic Investment Plan?
- Offers Long-term gains
- Flexibility to withdraw or increase/decrease investment amount
- Regular Savings
- Offers minimum investment of Rs 500/-
What is SIP & How it Works?
SIP allows investors to do regular and equal payments into the mutual fund, trading account, or retirement account. Also, SIP allows the investor to save regularly with a minimum or smaller amount with the long-term benefits.
Is SIP is tax-free?
Tax exemption up to Rs 1.5 lakh a year under section 80C, only if investors invest in ELSS mutual funds via SIP.
Which SIP offers the highest returns?
- Axis Bluechip Fund - 15.57% - 5-year SIP returns
- IIFL Focused Equity Fund - 14.71% - 5-year SIP returns
- SBI Focused Equity Fund -13.69% - 5-year SIP returns
- Mirae Asset Emerging Bluechip Fund - 15.40% - 5-year SIP returns
Why Should Invest In SIP?
- Reduces average cost
- Lower risk of equity fluctuations
- Investors can make the most out of the savings by compounding investing.
- Achieve Diversification