Mutual funds have gained popularity over the years and are a preferred investment alternative among investors. Mutual funds have generated significant returns in the past and they offer higher flexibility to the investors. One of the best things about mutual funds is a Systematic Investment Plan (SIP). Many investors are extremely confused about SIP investment plans. There are many benefits of investing in an SIP but first, you need to know how to invest in an SIP.
What is an SIP?
New investors think that SIP is a product in itself. That thought is a misconception. SIP is a kind of investment plan offered by mutual fund companies that allows investors to invest a small amount of money in a preferred mutual fund on a weekly, monthly, or quarterly basis for a specific tenure.
Why choose an SIP?
Once you understand what is SIP in a mutual fund, you will get an idea about the benefits of the same. An SIP brings financial discipline in your life by helping you invest regularly in a particular fund. You will not have to worry about the market movement or the index funds. You will not have to spend a lump sum when making an investment, as you start investing with a nominal amount on a periodic basis. Moreover, the money will automatically be transferred into your chosen scheme.
The biggest advantage of an SIP is the power of compounding. It will grow over the years and you will earn a significant amount of money at the time of maturity. The cost of investment will also come down and the market movement will have a neutral impact since the investment is made over a long period of time.
How to invest in an SIP
Primarily, you need to choose a fund that you want to invest in. There are a number of options available in the market and you need to keep your long-term financial goals in mind when deciding on the fund. Next, you need to define the amount you want to invest and the period when you want to make the transaction. The minimum investment amount is INR 500 and there is no upper limit on the same. You will have to finalize the amount and the date on which the transaction should be processed. You can set up the transaction online and the investment amount will be auto-debited from your bank account into the selected mutual fund. It is important to stay invested until the end of the period to earn maximum returns.
Always make a well-informed decision when you choose a mutual fund for investment purposes. Sit down and write your short-term and long-term goals in order to make the right investment decision. You need to consider your risk appetite and then decide on the amount that you wish to invest.