What is Systematic Investment Plan?

SIPs have been a revolution for retail investors. Convenient and easy to follow, SIPs boost your investment portfolio with minimum fuss

Many people dream of a big house, an expensive vehicle, and lavish bi-annual holidays. They work hard and stay focused on the goal, trying their best to ignore any distractions on the way. Despite that, however, few people go on and achieve those dreams.

The difference between the achievers and the believers often comes down to one thing: investments. Investing helps beat inflation, build wealth, and achieve your goals without compromising your immediate needs. A Systematic Investment Plan (SIP) is a popular way to invest, as it does not require a massive upfront investment. This article will help understand what SIP is, how it functions, and the benefits of SIP.

What is SIP?

An SIP is a method of investing in an asset class with regular payments. You can invest through the SIP route in many investment schemes, although SIPs in mutual funds are more common. Mutual funds are an asset class that earns returns by investing in diverse schemes. SIPs in mutual funds are a systematic way of investing fixed amount of money regularly. You can invest through SIPs at the end of every month, quarter, or year. It is easier to reach your financial goals if you invest consistently in this fashion.

How does an SIP function?

Through SIP, you can invest a small sum over time in the security of your choice. The money you invest regularly earns some units of the fund you’ve invested in. The value of these units changes according to the underlying securities in the fund. For instance, if you have invested in an equity mutual fund, the value of your units in the fund will increase if the stocks in the fund perform well.

Advantages of Systematic Investment Plan

The advantages of SIP include:

Compounding

Compounding is earning returns on returns. Your returns are reinvested when you invest regularly through SIPs. They earn returns just like your investment amount, which helps grow wealth. Investing over time is an excellent approach to maximise this profit. Investing early is the key, though. A 10-year head start can help realise your goals quicker than you can imagine.

Starting small

With just ₹ 500 each month, you can start investing in mutual funds through SIPs. It can be a cost-effective approach to investing without breaking the bank. With the SIP step-up function, you can increase your monthly investment amount as your income increases. Investors can top up their SIPs regularly with mutual fund distributors. So, even if you start with ₹500 or ₹1,000 per month, you can increase your investment in time. This method can assist you in achieving your investment objectives quickly.

Cost average of a rupee

Rupee cost averaging is a strategy that involves buying more units when the fund's Net Asset Value (NAV) is lower and fewer units when the NAV is higher. It averages out your acquisition costs across the investing time. When you invest through a SIP, you do not have to worry about market timing.

Convenient

SIPs are an easy way to invest. You may not have had the time to conduct thorough market research and evaluation to rebalance your portfolio. So, once you have chosen a decent fund, you can give the bank standing instructions and let the SIP handle your regular investments.

Mutual funds are a great way to build your portfolio. You can use IDFC FIRST Bank’s SIP calculator to know the returns you can get of an investment amount. IDFC FIRST Bank also allows you to invest in diverse mutual fund schemes. From equity-linked mutual funds to debt and hybrid funds, IDFC FIRST Bank can help you invest in the fund of your choice. Visit the website and begin investing today.

Disclaimer

The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.