In today’s day and age of financial instability, everyone relies on multiple sources of wealth creation for upgrading their lifestyle and living standards. At present, there are a lot of popular investment instruments, like Equity Investments, Mutual Funds, and Bonds, available for investors.
Depending on the risk-taking capacity, the investment tenure and the capital available, a potential investor can choose to invest in one or a few of these investment options.
What are mutual funds?
Mutual funds are a type of investment instruments that allow the investor to invest in the money market with the help of fund managers. The instruments of wealth creation such as shares, bonds, saving schemes, commodity exchange and other allied securities, generally pose a high risk to the investor. However, SIPs come with a hedge against a few of such risks.
The investor is able to allocate his funds to the most lucrative option with the help of a fund manager. The financial manager is obligated to make investments which have the best shot at reaping financial gains for the investor.
Mutual fund Investors have majorly two payment options-
- The investor can pay a lump-sum amount at the time of investing in a selected fund.
- The investor can choose to pay the investment amount periodically. This is what a systematic investment plan is. By the means of this investment option, the investor can choose to pay the amount at the intervals decided at the time of investing.
What are systematic investment plans?
SIPs are instruments of investment that offer investors an option to invest in mutual funds. This investment option is a simple and effortless way of investing and managing finances.
SIPs are a mode of investment in mutual funds without the added hassle of managing and investing large sums of money.
Features of SIPs
- The SIP allows investors to pitch in small sums at regular intervals.
- SIPs allow investors to choose the periodicity of investment. They can choose to pay the investment amount in-
- Monthly Payment
- Quarterly Payment
- The investor can invest as low as INR 100 per month.
- The investor has the freedom to decide the tenure of the investment.
- SIPs inculcate a habit of saving among the investor and give an option of wealth creation.
- This is the most popular investment option for first-time investors as the investors are offered a close understanding of how the market works.
- The mutual fund in which the investment is made is decided by the investor in accordance to his risk appetite, mode of payment and the available capital.
How to invest in SIP?
Investing in an SIP is a very simple process. The requisites for investing in an SIP are-
- A copy of PAN card.
- A copy of the address proof
- A copy of the Aadhaar card.
- A canceled cheque
Other than the identifiers, the cheques related to a specific bank account is required for the purpose of making systematic payments at the pre-decided intervals. The account is auto-debited on the date decided by the investor. This amount is then invested in a specific mutual fund. In accordance with the market trend and situation, the investment earns returns.
Benefits of investing in mutual funds through SIPs
- Financial gains– Systematic investment plans allow the investor to invest in mutual funds and earn a good return without being directly exposed to investment risks. The fund managers handle investments and choose the best option to invest in after weighing the various pros and cons. This offers a cushion to the investor’s finances and reduces the chance of bearing losses.
- Diversification– The SIP allows an investor to invest in multiple segments of the financial market without the hassle of investing hefty amounts and handling multiple investment instruments.
By the means of the systematic investment plan, the investor has an advantage of reaping returns even if a few of the selected funds do not reap profits. The loss so incurred can be compensated by other funds. So, eventually, the investor does not have to bear the losses.
- Long-lasting– The tenure of the investment is decided by the investor. This provides the investor with an option to reap benefits over a long duration of time and with the ability to liquidate his investment at any given period of time without any major setbacks.
- Flexibility– During the course of the investment, if the investor feels that he is unable to pay the installment, he can halt his payments and resume once he is ready.
- Convenience– SIP is the most convenient and hassle-free investment instrument for first-time investors as well as an investor who wish to compound the value of his savings.
It is evident by the available market data that more and more investors are choosing SIP as an instrument of investing their funds. It is easy, fast and exposes the investor to lesser risks. A systematic investment plan allows the investor to earn good returns over a long investment tenure.