What is SIP? How to start SIP for my financial goals?

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All of us have some goals to fulfill- like having a big house, a car, a family vacation in an exotic destination, etc. But you can only achieve your goals if you work towards them. Mutual fund investing through SIP (Systematic Investment Plan) is a simple way to achieve your goals. So, let’s look into the meaning of SIP, how they work, and how they can benefit you.

What is SIP?

SIP is a kind of investment in which an investor invests a fixed amount of money in mutual funds at regular intervals.

If you have invested in SIP then a fixed amount which is decided by you is deducted from your savings or salary account. This is made every month (in most cases) on your chosen day and directed towards the mutual fund of your choice.

You can choose investment according to your comfort, which can be weekly, monthly or quarterly. Generally, investors prefer to invest monthly in SIP. 

For example, if your current salary is 50,000 and you invest 10% of your monthly salary towards a monthly SIP. Then 5000 Rs. will be deducted automatically from your account on a monthly basis and will be invested in MF of your choice. This entire process is automated so you don’t have to worry about making SIP payments manually.

How does SIP work

As discussed above, in SIP you invest only a fixed amount of money in a given period. In case you are continually investing for a long time, then you can invest in funds during the highs and lows. You do not need to time the market to make investments. Market timing can be a risky proposition as one can invest at the wrong time. SIP investments remove this factor of unpredictability.

Advantages of SIP

There are several benefits of investing in SIP. Let’s take a look at what some of them are.

Responsible Investor

SInce Your money is automatically deducted from your account so you become responsible with your money and hence a responsible investor. 

When you invest in SIP and it becomes a part of your life then you learn to adjust your lifestyle and spendings accordingly. You become more aware of any unnecessary expenses and make a deliberate attempt to reduce them significantly.

Works Conveniently

In SIP we do not require you to make any manual payments from your end. Payments done in SIP are completely automated. You can set it up once and not worry about any other needless logistics with regard to your future payments.

Low initial investment

In mutual funds, you can invest with just Rs.500 per month. This amount can be easily invested without hurting your wallet. You can increase your monthly investment amount with a rise in your income via the SIP step-up feature. 

Diversification

Since SIP is invested in a mutual fund, which in turn invests in a good mix of different kinds of market instruments like equity, debt, and so on, your investment is automatically well-diversified

SIP Investments According to Your Financial Goals

One of the reasons why it is considered to invest in SIP is because they can help you achieve some of your most important financial goals.

1. Short-term goals

Short-term goals are the goals that you want to achieve in 3 to 5 years from now. These goals can be anything like buying a house, an international trip, purchasing a vehicle and many more.

Your goals can be different based on your choices and personal preferences.

2. Long-term goals

Long-term goals are the goals that you want to achieve over a period of 10 to 15 years or even more.

These goals can be saving money for the future for your child’s education, having enough money available for the wedding of your child, and so on.

For instance, let’s assume your child is 8 years old now and you would like to pay for your child’s education abroad. Your goal would be to have about 15 to 20 lakhs available in the next 10 years. With this kind of clarity in mind, you can plan your SIP accordingly. 

Health insurance, term insurance, and other such policies typically come under long-term planning as well. Long-term goals include planning for your retirement.

3. Emergency requirements

By investing you can save your money for unexpected incidents and situations is equally important. 

In case you have a medical emergency then such funds can help in a health emergency at home. This might help you cover the treatment expenses. 

What if you find yourself unemployed due to unforeseeable circumstances? An emergency fund with at least  4 months’ worth of salary will help you get by until you find employment again.

Here are Steps To Invest In Mutual Fund SIPs

Some of the SIP Funds are:

Mutual Funds  Current Value Return
Quant Active Fund Rs. 12.73 lakh +30.66% p.a.
Parag Parikh Flexi Cap Fund ₹11.16 Lakh +25.11% p.a.
Mirae Asset Emerging Bluechip Fund ₹10.94 Lakh +24.28% p.a.
UTI Flexi Cap Fund ₹10.6 Lakh +22.99% p.a.
Canara Robeco Emerging Equities Fund ₹10.18 Lakh +21.3% p.a.

Lastly, if you are someone who is new to investing or do not understand the functioning of mutual funds, it is better to seek some professional help before investing.

Mutual Fund Investments are subject to market risks, read all scheme-related documents carefully.

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