Mutual Funds SIP Investment - Invest Smartly and Accomplish Your Financial Goals

Systematic Investment Plan (SIP) is a way of investing money in mutual funds at regular interval.
Look, you have to invest money to reach your financial goals. We all have multiple goals to accomplish such as retirement, children's education, buying a house or a car, vacation and so on. Investing is one of the best ways to achieve these goals and watch your money grow.

I haven't seen a single rich person who has become wealthy by just saving money. You need to save money to invest. In fact, You have to invest your money where returns on investments can beat inflation. In general, beating inflation requires a return on investment of at least 8% to 10% per year.

So, let's now talk about Mutual funds SIPs that offer a simple and disciplined way to invest and accumulate wealth over the long term.

Systematic Investment Plan (SIP) is a way of investing money in mutual funds at regular interval.

It is a type of mutual fund investment plan that allows people to invest in a systematic and planned manner. It allows you to invest a small amount of money on a regular basis at predetermined intervals. It allows you to maximize your returns by investing in multiple mutual funds.

You can choose any date for your SIP. You can choose any amount of investment and withdraw it whenever you want. You can begin investing with as little as Rs 500, which can be invested weekly, monthly, quarterly, half-yearly, or yearly. You can Increase/Decrease SIP amount of investment whenever you want. You can also stop investing in a plan at any point of time.

What are the advantages of investing in SIP?

Simple and less risky

Mutual funds SIPs offer a simple ways to invest in mutual funds. It is a smart tool that helps break your big goals into small amounts. You do not need a large sum of money to begin investing in SIP. You can begin with as little as 500Rs. SIPs are less risky than investing directly in the stock market. You can also Invest in a variety of funds that will help you diversify your portfolio.

Bring in Discipline

Investing via an SIP would make you disciplined in terms of managing your finances. With the option of automated payments, you don’t have to go through the hassle of investing manually every month.

Rupee cost averaging

Because the amount in a SIP with monthly fixed installments is fixed and consistent,  you get the more units when the market go down and less when it goes up. Thus, you average out the cost of buying mutual fund units. And this way, The investment risk is spread out across market fluctuations.

Power of compounding

Compounding in mutual funds refers to the interest or profits earned on the profits from your investments. As a result of compounding power, even small investments generate a good return in the long run. The longer you stay invested, more is the benefit of compounding. It is like earning interest on interest. Hence start an SIP early and enjoy the power of compounding

Now let's talk about smart strategies to maximize the gains from your SIPs

a. First of all make a list of your goals and work out a plan

b. Then choose a monthly or quarterly SIP which suits your goals

c. Now, Identify the scheme(s) in which you would like to invest

d. Be prepare to invest for long term to benefit from the power of compounding and rupee cost averaging

e. And always diversify by investing in multiple SIPs with different schemes to optimize returns

Who should make SIP Investments?

As SIP provides numerous advantages anyone who wishes to invest can do so through SIP. After you've determined your goals and needs, as well as your willingness to take risks, you can begin investing on a long-term basis. If you want to make quick money with a short-term investment, SIPs are not the way to go. And yes, SIPs are safe, but it is best to seek financial advice before investing.

How can you invest in SIP?

To invest in SIP there are two ways:

Monthly SIP: You can choose a fixed installment amount and a start date for your SIP (a date on which you want the money to get deducted from your account).

One Time Investment: You can invest a fixed lump sum amount once with this type of SIP.

What do you need to consider while investing in SIP?

The first factor to consider is the fund's performance. You'll need to look at both the current and previous performance. A fund's rate of return can be calculated by reviewing its past performance over a 5-year period or longer. You will also need to conduct a proper peer comparison while investing. A successful fund should outperform its benchmark as well as other funds in the same group.

It would also be beneficial to know who manages your fund. Knowing about your fund manager and their track record will help you develop an effective investment strategy.You'll need to look into which companies the fund is investing in. It should invest in booming sectors rather than those that are struggling. Before investing in a SIP, this should be double-checked. You will also have to check the investment objective of the fund. And let's not forget to keep a tab on the expense ratio, exit load and tax implication of the fund you would be investing in. It is advisable not to redeem before one year as your returns would be taxed at the rate of 15%.

A portion of your return is deducted to cover the fund manager, fund distributor, advertising, and other expenses which are known as the expense ratio. Make sure the expense ratio is on the lower side as it does have an effect on your earnings in the long run. Different SIPs have different exit loads, or fees you would have to pay if you are redeeming it before a year. If you redeem your mutual fund before a year, you may be charged an exit load of up to 1%. This is imposed to discourage you from redeeming yourself too quickly.

This is a very common question: Is SIP safe?

The term "safe" is highly subjective. SIP is safe because it allows you to focus on long-term goals rather than short-term market fluctuations. SIPs, like any other investment, carry risk due to poor investment decisions, market fluctuations, or both. Before making any investment decision, it is best to consult with a financial coach or consultant to help you invest in the best SIP.