Things To Know About SIP: What Is SIP And How It Works
What exactly is a SIP Investment?
“A drop at a time fills the bucket,” as the expression goes. A SIP investment is based on the same idea. You may invest once a week, once a month, three times a year, or once a year. You will also wind up with a lot of money over time.
To see how this works, consider taking out a loan. Most individuals get a loan when they make critical life choices (e.g., purchasing a house or vehicle, paying for a wedding, or taking a vacation). When you take a loan to finance these goods, you’ll be required to make a minimum monthly payment (called an EMI). You also have to repay both the principal and the interest on the loan.
The fundamental difference between a loan and a SIP is that loan borrowers must pay interest, but SIP investors may get a significant return on their money.
What is the purpose of a SIP plan?
SIP plans allow you to invest in various mutual funds over time, potentially allowing you to accumulate money more rapidly. In this scenario, making a profit and being wealthy is not the same thing. SIP mutual funds are an excellent option for consumers who wish to build up their savings. This money is then deducted from your account at the time you specify.
Assume you have an automatic deduction set up on the 5th of each month to deposit money into a SIP investment. So, on the 5th of every month, this money will be deducted from your bank account and invested in the mutual fund you choose.
How SIP Investments Can Be Used to Make Money
So, for this example, suppose the NAV of a mutual fund is Rs 20 right now. If you invest Rs 1,000 (about $160) in the mutual fund, you will get 50 shares. The mutual fund’s money will rise at the same pace as its net asset value (NAV). If the NAV of this fund rises to INR 30 the following year, the 50 units you purchased for INR 1,000 will be worth INR 1,500. This is how your money increases over time and provides you with financial security.
SIP Types and What They Mean
Let’s have a look at some of the various SIPs accessible, such as:
Top-up SIP Investment
You may put additional money into your SIP at certain intervals with a “Top-Up SIP.” The term refers to the fact that your SIP payments may increase when your income increases. With a top-up SIP, you may accelerate the process of creating a substantial corpus and meeting your financial objectives.
The following is an example of a SIP top-off:
Rahul is considering creating a SIP to invest a certain amount each month. This would assist him in saving for his retirement. He intends to invest Rs 20,000 monthly into a multi-cap fund for the next 20 years. He aspires to make at least 11% each year. Rahul’s original investment of Rs 48 lakhs would increase to around Rs 1.75 crores with a monthly investment of Rs 20,000 and an annual return of 11%.
What if Rahul chooses to increase his SIP contribution by 10% annually? With a Rs 93.60 lakh investment, he could save around Rs 2.82 crore. You might amass a fund worth more than Rs 1 crore by raising your monthly SIP contribution by 10% each year.
Flexible SIP Investment
With the flexible SIP, you may alter the amount automatically deducted from your account each month to invest in a mutual fund. If you’re having difficulties making ends meet, you may use this option to notify the mutual fund firm that you need to temporarily suspend your SIP payments. You may add more money to your SIP for a short period if you have additional income.
Perpetual SIP Investment
During the application process, you will be prompted to choose the duration of your SIP. It will continue forever unless you provide an end date for your SIP. To cancel your SIP, notify the mutual fund firm that you no longer want to make payments. If you don’t want to restrict your contributions to a certain period, choose “perpetual SIP” in the SIP application.
Trigger your SIP investment
You may utilise the trigger SIP if you understand how the stock market fluctuates. You may adjust the date of the initial investment or withdraw funds after the event has occurred. You can use a net asset value (NAV) or an index level to set up a trigger that will go off when a given market circumstance is reached. However, you should only use a trigger SIP if you understand how the stock market works.
How Do You Choose Mutual Funds to Invest In?
Online, you may learn much about your preferred mutual funds, including how they’ve performed. You are responsible for ensuring that the fund you select meets the requirements outlined below.
Taking a risk
To invest wisely, select funds whose level of risk corresponds to your willingness to take risks. For example, if you are a cautious investor, it is better to invest in safe investments.
Size of Asset
One way to select a fund is to ensure it has at least Rs. 500 crore in assets. Smaller funds aren’t always bad, but investors should be aware that they carry a higher risk before investing in them.
Conclusion
To get more information on SIP investment and SIP plans, you can contact Piramal Finance. They are the leading experts in financial solutions for every problem. Talk to them and start your SIP investment today.