If you are willing to invest in mutual funds then you must have heard the name of SIP, in this article we will discuss about SIP in detail. What is SIP (SIP meaning)? The full form of SIP is (Systematic Investment Plan).
SIP is a way to invest in mutual funds and through this you can invest in any mutual fund very easily. And because of these qualities, this method of investing is very popular. Let us understand in detail.
What is SIP?
SIP is a way of investment in mutual fund through which, you can easily invest in any mutual fund in which you can invest a fixed amount continuously over a fixed time interval. And you can decide this amount according to your convenience 500 or 1000 or 5000 or ₹ 50,000 or as per your wish and you can choose this amount weekly or every month or every 3 months or according to your convenience.
How much and when you have to deposit this amount, this information is already given to you in the plan of that mutual fund. We can also consider this as a systematic way of investing in which you get used to investing continuously. Which helps you build wealth for your future in the long term.
How does SIP work?
As an investor first you have to decide how much amount and when you want to invest here for example we are assuming that you want to invest ₹5000 every month.
Now as soon as you start SIP, every month 5000 rupees will be deducted from your bank account and invested in this mutual fund.
Whenever your money is invested in that mutual fund, the mutual fund will buy from that money in the stock market at that time price and in return you are given some units of that mutual fund. It also shows the investment of that mutual fund in the unit market.
Now every month as your money will go to that mutual fund, the mutual fund will buy at the market price of that time, and every month the market price will be different, this will make your purchases at different prices and you will get the benefit of averaging.
Let us understand this through an example –
You started SIP in a mutual fund named ABC for a month at Rs.500. Just as the price of a share of a company is determined by the mutual fund unit, whatever money you invest in that mutual fund, your purchase is done in the unit. The mutual fund fixes a unit price which is called NAV (Net Asset Value).
In simple words we can say that nav is the price of 1 unit which changes daily.
In the table given below, we are showing 1 year investment in mutual funds and buying them at different prices.
Date of Investment Amount & NAV of Units Purchased
| Date of Investment | Investment Amount | 1 Unit Of NAV | NO. of Units |
| 5 Jan 2020 | 500 | 50 | 10 |
| 5 Feb 2020 | 500 | 45 | 11.11 |
| 5 Mar 2020 | 500 | 40 | 12.5 |
| 5 April 2020 | 500 | 35 | 14.28 |
| 5 May 2020 | 500 | 30 | 16.66 |
| 5 June 2020 | 500 | 25 | 20 |
| 5 July 2020 | 500 | 30 | 16.66 |
| 5 Aug 2020 | 500 | 40 | 12.5 |
| 5 Sept 2020 | 500 | 45 | 11.11 |
| 5 Oct 2020 | 500 | 50 | 10 |
| 5 Nov 2020 | 500 | 55 | 9 |
| 5 Dec 2020 | 500 | 60 | 8.33 |
In the above table you can see that the highest price of nav of mutual fund was Rs 60 in the month of December, on which we were able to buy only 8 units from our investment of Rs 500 and the most work nav was Rs 25 in June in which we got maximum 20 Unit found. And in 12 months our purchases were done at an average rate of Rs 42.
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Benefits of investing in SIP
Investing in SIP is a good option for those people whose income depends on the salary of the month, do you know why SIP is so popular among common investors?
SIP investment is always in open ended fund, from which you can withdraw your money whenever you want.
There is no fixed time limit for SIP investment, you can invest for as many times as you want.
If you have chosen a time period of 10 years in SIP investment, then you can close it before 10 years or if you want to extend it for 5 more years after your 10 years, then you can do it by talking to your mutual fund. can also increase
You can increase or decrease the amount of sip investment whenever you want, if you are investing 1000 sip then you can also do it 500 or you can also do 1000 to 2000.
Why should I invest in SIP? (Why to invest in SIP)
SIP investing protects you from the risks caused by market volatility.
SIP Investing is considered to be a systematic way of investing in the market. Investing in this shows your wisdom.
There is no charge to invest in SIP.
In SIP investment, you will get the benefit of compound interest in the long run.
A small investor can also start his investment in SIP, he can start investing in SIP with an amount of Rs 500.
Disadvantages:
Mostly the profit from SIP in the long term is less as compared to lump sum investment.
You should have sufficient amount in your bank every month for investment.
If there is not enough amount in the bank, the bank can collect the fine from you.
FAQ
What is the return in SIP?
It depends on the tenure of your investment, the sooner you start investing in SIPs, the more profit you will get. In the long run, although SIPs give workable returns compared to lump sum investments but investing in SIPs also protects you from market risks.
How to start SIP?
If you have opened your Demat account with any stockbroker, then you can start investing in SIP. Nowadays, all the top brokers provide the facility to invest in mutual funds from their platform. Or you can go to the website of any mutual fund and get information about direct SIP.
What are the benefits of investing in SIP?
You will get the answer of this question above, still investing through SIP is risky as compared to lumpsum investment, even a person with income can start this work, you can withdraw your money whenever you want. is etc.
Is it safe to invest in SIP (is SIP safe)?
SIP is a way of investing in mutual funds, by this you are investing your money in mutual funds only, you consider investing in mutual funds as safe as it is safe.
Do we have to pay tax on the income earned from SIP (Is SIP tax free?)?
If you invest in Equity or Balanced Mutual Fund through SIP, then after one year your profits will be tax free due to the benefit of capital gains tax. At the same time, if your investment is in debt fund or hybrid fund, then you will have to pay tax on the profit made from it.
Nirmal is a NISM Certified Derivative Trader & the Founder of InvestandEarn.net (Financial Blog). He entered the world of Equity research to explore his interests in financial markets having 5+ Years of Experience in Share Market Trading & Investing. Nirmal frequently writes about Share Market Trading & Investment and publishes his personal view on the market. Drop him a mail at nirmal.jaysval@investandearn.net.
