What Is Systematic Investment Plan And How To Inves In?
In the constantly evolving financial market, investment strategies have proliferated, providing individuals with numerous avenues to grow their wealth. Among these strategies, the Systematic Investment Plan (SIP) stands out as a disciplined mechanism for building a substantial corpus over time. This article delves into what a SIP is, elucidates the steps for easy investment, and demonstrates the potential benefits using the accessibility of an app for SIP investment.
Understanding Systematic Investment Plan (SIP)
A Systematic Investment Plan (SIP) is an investment vehicle offered by mutual funds, allowing investors to contribute a fixed amount regularly into a mutual fund scheme. SIPs enable investors to buy units of funds consistently, thereby promoting disciplined saving and investment habits. This systematic approach helps mitigate the risks associated with market volatility by leveraging the principle of Rupee Cost Averaging (RCA) and compounding.
Rupee Cost Averaging (RCA)
RCA involves purchasing more units when prices are low and fewer units when prices are high. For instance, if you invest INR 1,000 every month:
– In January, let’s assume the NAV (Net Asset Value) of the mutual fund is INR 50. You get 20 units (1000/50).
– In February, the NAV increases to INR 100. You obtain 10 units (1000/100).
– In March, the NAV drops to INR 25. You accrue 40 units (1000/25).
Despite market fluctuations, the average cost per unit is kept moderate, smoothing out the risks over time.
Power of Compounding
By reinvesting your earnings, the returns generate additional returns. Over longer periods, this exponential growth can lead to significant wealth accumulation.
How to Invest in SIP Easily Using an App
Investing in SIPs has become extremely accessible through various financial applications facilitated by fintech advancements. Here’s a step-by-step guide on how to invest in SIPs using an app for SIP investment:
Step 1: Choose a Reliable Investment App
Select an app that’s user-friendly, secure, and offers a wide range of mutual funds for SIPs. Popular apps include Paytm Money, Groww, and Zerodha Coin.
Step 2: Register and Complete Your KYC
Upon downloading the app, register by providing your basic details and completing the Know Your Customer (KYC) process. This may include submitting documents such as PAN card, Aadhaar card, and a selfie for identity verification.
Step 3: Select the Mutual Fund Scheme
Examine different mutual fund schemes listed on the app. Look for information about their historical performance, fund managers, and objectives. Align the scheme with your financial goals, be it for wealth creation, education, or retirement.
Step 4: Decide the SIP Amount and Frequency
Determine the amount you wish to invest periodically. Frequent intervals can be weekly, monthly, or quarterly. For example, setting a monthly Systematic Investment Plan (SIP) of INR 5,000 ensures consistent investment towards your goals.
Step 5: Set Up Auto-Debit for Your SIP
Link your bank account with the app and activate the auto-debit feature. This ensures that the SIP amount is automatically deducted from your bank account on the selected date, streamlining the investment process.
Step 6: Monitor and Review
Regularly monitor the performance of your mutual fund scheme. Most apps provide dashboards and analytics to track your investments. Reviewing periodically helps ensure that your investments align with your financial milestones.
Step 7: Adjust as Necessary
Based on your review, you can make necessary adjustments such as increasing the SIP amount, switching schemes, or redeeming partial investments.
Benefits of Investing via SIP Using an App
Convenience and Accessibility
Modern investment apps allow you to start, pause, or stop your SIP investments seamlessly with a few clicks, providing unparalleled convenience.
Lower Entry Barrier
SIPs demand minimal initial investment, making them accessible to a wide range of investors. Some schemes allow investments as low as INR 500 per month.
Diversification
Mutual funds pool money to invest in diversified portfolios, distributing risk across various assets.
Disclaimer
While SIPs offer numerous advantages, it’s imperative to assess the pros and cons before investing. The Indian financial market is dynamic, with inherent risks. Hence, conducting thorough research or consulting with a financial advisor is recommended to tailor investments according to your risk tolerance and financial goals.
Summary:
A Systematic Investment Plan (SIP) is a methodical and consistent investment strategy that allows individuals to invest a fixed sum regularly in mutual fund schemes. The process involves timelines and predetermined amounts, wherein the benefits of Rupee Cost Averaging (RCA) and the power of compounding help mitigate market volatility and maximize returns over time. Investing in SIPs has never been easier, thanks to numerous financial apps that offer user-friendly interfaces and wide-ranging mutual fund options. By registering on an app for SIP investment, completing the KYC process, and setting up auto-debit from your bank account, individuals can conveniently start their investment journey. Benefits include lower entry barriers, diversification, and easy tracking. However, due diligence and personalized financial advice are essential for a sound investment strategy.
