How to Do SIP Online and How Much to Invest
A smart investment allows you to build wealth and use your hard-earned money on a rainy day or times of emergency. To earn some additional income and enjoy long-term returns, there are a plethora of investment strategies and plans, and ‘Systematic Investment Plan’ is one of them which is taking the world by storm. There are many questions that pop in our heads like what is SIP? How to do SIP Online? How much to invest? Where to invest? If you too are struggling to find answers to these questions, then you’ve landed in the right place. Let’s read further and enhance your knowledge regarding this smart investment tool, i.e., an SIP.
Invest as Low as Rs 500 Monthly in Your Preferred Mutual Fund with a SIP
They say, ‘Little drops make the mighty ocean- we all have heard it several times, and now it’s time to experience how this saying works in the world of SIP. This tool allows you to invest a minimum of Rs 500 on a regular interval in your preferred mutual fund. It depends on the investor how he/she wants to invest- it can be monthly, weekly, quarterly or even annually. It helps you save a lump sum amount to secure your future or meet financial goals without putting a strain on the pocket. Over a period of time, you can create a huge amount of wealth using small amounts of money.
In this plan, investors gain the habit of doing regular savings with a small amount of money and build a portfolio gradually with the passage of time. We all have heard that consistency is the key, and SIP makes it come true by making us learn that consistency in investment can truly help you achieve your long-term financial objectives.
How Does an SIP Work?
Before you make up your mind to invest in SIP, it’s essential for you to understand how it works. The Systematic Investment Plan works on regular intervals or consistent investments, which seems like a recurring bank deposit. The specific amount of money you want to invest will automatically be debited from your bank account on the selected date of the month, and you’ll be allotted the units based on the selected mutual fund’s current Net Asset Value (NAV).
For instance, if you’ve decided to invest Rs 1000 and have selected the 10th of every month as the SIP deduction date, then the same amount will be deducted on the 10th of every month only and will be invested in the chosen mutual fund. In exchange of the amount paid to mutual funds, it allots you the number of units. Let’s assume that the NAV for your selected mutual fund is currently Rs 25. Now if you invest 1000 in that mutual fund, you will be allotted 40 units of the scheme. Your investment grows simultaneously with the growth in the NAV of that mutual fund. So, if after some years the NAV of the same fund becomes Rs 35 then the 40 units you were allotted for Rs 1000 will be worth Rs 1400 after the increase. This way, your investment in the SIP continues to grow and helps you create wealth over a period of time.
SIP is more of a passive investment wherein you put your money in a mutual fund, and continue to invest regardless of how it performs. Having said that, it is important for you to keep a close eye on the scheme as to how it is performing and helping you grow your money. If you are a beginner and find it perplexing, then it is always good to connect with a financial advisor, mysipcalculator or a broker to guide you with the best investment plan while doing SIP online.
What are the Benefits of Investing in SIPs?
For a true-blue investor, SIP is a blessing with a variety of benefits. Take a quick read to know in detail:
Works with Small Amount of Money
To begin with, all you need to do is invest a small amount on frequent intervals. It never makes you feel the effects of a big lump sum amount being withdrawn from your bank account every month. This will not put any burden on your pocket or disturb your monthly expenses or budget. Set the amount you wish to invest and fix a date of deduction, and the selected amount will be deducted from your bank account automatically.
Less Risk; More Discipline
With SIP, the investor gets into the habit of investing a specific amount of money consistently, which eventually makes him more financially disciplined. Also, this tool comes with lesser risks of loss as compared to the other types of investment strategies like shares and bonds.
The Cost Gets Averaged Out
The feature of Rupee Cost Averaging helps you in the upheavals of the financial markets. When the market is down, you can buy more units and when the market is up, you can buy less units. Therefore, whatever the situation, an investor is in a win-win situation. It reduces your cost of investment and provides you higher gains. This way your cost gets averaged out. Thus, you need not worry or fret over the ups and downs of the market as the cost automatically gets averaged out.
The Benefit of Compounding
When you invest your money in a Systematic Investment Plan (SIP), you are entitled to receive compound interest on your investments. Compounding takes place when your returns are also reinvested. For instance, suppose you have invested 1 lakh in a mutual fund and get 18% return in one year, then by the end of the year the total amount will be 1 lakh 18 thousand. When you invest for an extended period of time, you gain maximum gain. A one-time investment never fetches you better returns but SIP operates on a different principle and that’s how the power of compounding helps you grow your money exponentially.
SIP provides you with the leeway to choose the fund based on its performance and also withdraw the amount from the fund if you think it is not performing as per the expectations. Also, the amount you invest for the number of years is flexible as it solely depends on your personal capacity to invest and financial goals.
Serves as an Emergency Fund
Being an open-ended fund without any tenor, you can easily withdraw your SIP investment if there is any emergency. From medical emergencies to children’s higher education, this disciplined approach will support you throughout.
SIP has become investors’ favourite mode of investment in recent years as it helps them achieve their future financial goals without straining wallets. Before you invest, do profound research and then only select the fund as per your investment horizon. Maintain regularity in paying the selected amount every month and forget it for several years to accumulate long-term wealth.