Systematic Investment Plans Explained (What Does SIP Mean): Whether you want to generate a side income or grow your hard-earned money for long-term financial security, there are a plethora of investment options out there! You can take a step towards planning your financial goals by investing in stocks, real estate, mutual funds, bonds, precious metals, and the likes. One of the most popular ways to invest a fixed amount regularly in a mutual fund scheme of your choice is known as SIP or Systematic Investment Plan.
Let’s learn about the meaning of SIP, why investing in SIP is a great option and everything else there is!
Systematic Investment Plan (SIP) Meaning
SIP, as a concept in mutual funds, stands for Systematic Investment Plan. As the name suggests, it is a systematic way to invest a fixed amount at regular intervals. A systematic Investment Plan (SIP) is an excellent approach to meet your financial goals either monthly, quarterly or semi-annually.
SIP is often used as another word for savings and investment for people who are just entering the world of personal finances.
Benefits Of SIPs
Now that we have established a basic understanding and learned the meaning of SIP, you must be wondering, “Why should I invest in SIPs?” SIPs have gained the name and fame in the field of investments due to the following features:
Smart Investment Plan
You can also interpret SIP meaning as Smart Investment Plan or Small Investment Plan. Why is this so? For SIPs, you neither require a large sum of money nor rigorous planning. Thus, SIP offers a low initial investment that doesn’t hurt your pockets.
SIPs are a great option for flexible investment.
- You can choose the interval at which you invest, such as weekly, monthly, quarterly, semi-annually, yearly, etc.
- In case of a financial crunch, you can pause the SIP for one to three months.
- A SIP not only lets you invest a fixed amount periodically but also gives you the “SIP-Top Up” option to make room for additional contributions.
In simple words, compounding refers to the process of earning returns on the returns of your investment. Systematic Investment Plan is fueled by the power of compounding. This means if you are investing a certain amount of money in a mutual fund scheme, your gains are reinvested to generate additional earnings over time.
Let’s look at an example to understand this concept better. Suppose you invest ₹2,000 a month in an equity fund through SIPs at an interest of 12% for 40 years. Your invested amount will be ₹9.6 lacs, which will lead to a wealth gain of (imagine the drum rolls) ₹2.3 crores and a final corpus of ₹2.4 crores.
Rupee Cost Averaging
The theory of rupee cost averaging is that you can buy more units of mutual funds even when your Net Asset Value (NAV) is low. When the markets are high the same SIP amount can purchase a lower number of units, and vice versa. As compared to lump sum investment, SIPs are relatively less affected by the volatility of the markets. This gives you a chance to average out your purchasing costs over the tenure of your investment.
Looking for SIP meaning, you have successfully taken the first step towards fulfilling your financial goals. This means that you are carefully chalking out a plan for financial security for your coming days and gives you a direction to make sound decisions.
Factors To Consider Before An SIP Investment
It is to be kept in mind that SIPs can only yield good returns when you’re in for long-term investment. Apart from that, there are a few other factors to consider before you invest in a SIP. Let’s have a look at these factors:
- Investment should be aligned with your goal
- For example, if you’re planning to create an emergency fund, a debt mutual fund is a good choice for you
- Flexibility to choose an amount
- Minimum ₹500 per month
- No upper limit
- Avail tax benefits for investments in Equity Linked Saving Schemes (ELSS) under section 80C of the Income Tax Act
- Flexibility to choose from weekly, monthly, quarterly, semi-annually, yearly, etc.
- Choose it according to your cash flow
SIP Time Period
- No fixed tenure (open-ended investment)
- Tenure can be of one, two, five, ten, or any number of years.
SIPs are a powerful investment method that lets you create a fixed periodic investment in mutual funds. If you want to invest in a Systematic Investment Plan, all you need to do is complete your KYC and set your investment goal. Based on your financial goal, you can choose the particular fund you want to invest in and you’re good to go!
What is SIP investment?
SIP meaning in mutual funds is a Systematic Investment Plan. As the name suggests, it is a systematic way to invest a fixed amount periodically. A systematic Investment Plan (SIP) is an excellent approach to meet your financial goals either weekly, monthly or quarterly.
What is the benefit of SIP?
The benefits of SIPs are: Smart Investment Plan, Flexibility, Compounding, Rupee Cost Average, Financial Independence
Which SIP is best in India?
Few of the top-performing mutual funds to invest through SIP are- 1. Kotak Standard Multicap Growth, 2. Motilal Oswal Long Term Equity Fund, 3. Regular Plan-Growth, 4. Mirae Asset Large Cap Fund Regular Growth, 5. Axis Bluechip Fund Growth
Is SIP safe for long-term wealth?
Investment through SIP is a good option for long-term wealth creation. This is because of compounding, which can help you earn returns on the returns of your investment.
How much should a beginner invest in a mutual fund through SIP?
One can start investing in SIPs with an amount as low as ₹500 per month. Also, there is no upper limit for investment.