Systematic Investment Plans (SIP)
Mutual fund SIPs are a well-researched, methodical, and scientific way to build wealth over the long term. The concept is not brand-new. Brokers and distributors of mutual funds have been actively promoting them for more than 20 years. But SIPs have gone through some changes recently.
Equity mutual funds have had continuous outflows since 2008, when the market slump first started. Midway through 2014, the pattern altered, and it has persisted ever since. But, a growing proportion of mutual fund inflows are going to equity funds. A growing proportion of those inflows are going to come via retail SIPs.
Why should you invest in an SIP?
SIP encourages regular saving habits and instills a sense of discipline in your financial decisions. An SIP is based on the principle of small, frequent savings. SIP makes it possible for the investor to accumulate wealth over time. An SIP also has a lot of other advantages. The most significant ones are listed below.
Rupee Cost Averaging
SIPs can help with cost-return ratio averaging. Due to the volatility of the equity market, an investor can buy more units when the price of shares is low. They buy fewer units when the share price is higher.
Regular investors have a better chance of obtaining more shares at low prices than those who make a significant one-time investment. It is all thanks to SIPs.
Power of Compounding
Any modest sum of money, when invested for a longer period, can compound and earn you large returns. This is based on the compound interest principle. By making small, frequent investments, the investor will be able to build up a sizable corpus. Thus, they can meet long-term financial objectives.
Even if you are someone who consistently makes investments, you could occasionally forget to make the payments. An SIP eliminates this by automating the payments. A predetermined sum is automatically debited from your bank account each month. Therefore, there is no chance of forgetting to make the payments.
Funds can be used for emergencies
With a single click, you can withdraw entire amounts from an SIP at any moment. This fund can cover any unplanned event, like losing your job, getting hurt, getting sick, etc.
How to achieve more with SIP?
Make sure you perform the following to get the most out of an SIP.
- Make a list of your objectives and figure out how much savings you will need to achieve them.
- To achieve your goals, decide how much you want to invest monthly or quarterly through an SIP.
- Find out which mutual funds have performed successfully in the past by researching the market. Once you have completed that, you can choose which plan to invest in using an SIP.
- Investors must complete the KYC verification process for all mutual fund investments. They also need to complete other formalities, including submitting checks and paperwork. Finish the procedure and begin investing.
- Choose a long-term plan if you want to get good returns on your investments.
- To diversify your holdings and maximize results, you can invest in a number of SIPs.
How to Calculate SIP
SIP calculations are an essential but slightly complex component of investing. The SIP investments are carefully planned investments that occur on a regular basis. You receive units that are prefixed according to the NAV value of the chosen scheme at the time of investment.
As time passes, a large number of these units amass. This makes it challenging to calculate the precise amount of money one has acquired during this time period. This is because each installment will have developed differently.
To simplify matters, all you need is your computer. You need a basic understanding of the excellNSE-2.16% application. Figure out the returns on each investment you have made. XIRR is a formula that can be used to calculate the returns on your assets.
Open the Excel document and enter each SIP date in a separate column.
The amount you have invested in the SIP should be entered in the field below Step 1. Now, enter the amount with a (-) minus sign in front of it, assuming you are putting INR 1000 into it every month.
This indication is crucial because it will specify the cash flow.
After completing these steps, enter the total market value of all the units you hold. Input the date for which you want to check the returns, together with the market value of each unit in the scheme, in the appropriate fields. These must be entered in the same scheme where the SIP amount and date were previously entered.
By logging into your SIP account and looking through your statement, you can determine the market value of the units. The market value of the units should not be preceded by a minus symbol (-). This represents a cash inflow rather than an outflow of funds.
It is now time to use the XIRR function. It may be accessed by moving the mouse to the empty cell next to the current one and then selecting XIRR. The dates, values, and other options listed below must be filled out.
- To input a value in the value field, choose the cell that contains the SIP amount and the market value.
- You must choose the cells containing the return date and SIP dates in order to fill out the date choice.
- Select the “guess” option, and then click OK.
The final step is to simply multiply the decimal value available by 100. The outcome would display the return amount earned for the specified SIP investment on the desired date.
There are many ways to figure out your returns by hand, but this is one of the easiest.
A sensible, hassle-free way to invest a set amount in a mutual fund scheme is through an SIP. It enables you to buy units on a specific day each month in order to carry out a savings strategy. A specific, predetermined quantity can be invested at predetermined, regular intervals. It can be quarterly, monthly, weekly, etc. Visit Piramal Finance to learn more about such topics!