What Is SIP? All You Need to Know

A systematic investment plan is the full form of SIP, which refers to the facility that allows investors to make investments in instalments in mutual funds. SIP has evolved to be one of the most popular investment methods in today's scenario because of its flexibility. If you are new to the field of investments, it is vital to understand what is SIP and the facilities it brings about in the field of investment in today's market.

When someone follows the SIP schemes, they are free to make investments in instalments that make the entire procedure risk-free and secure until the end.

SIP schemes are available in India for different periods. Investors are free to choose whether they want to go for one year or five years or more to invest in, keeping in mind their investment goals for the future.

Here is all you need to know about SIP, how you can invest in it, and the steps to be followed before starting to invest.

What is SIP?

A SIP method allows the investors to invest their money in mutual funds for a prolonged period at predefined intervals. The fixed investment can be as minimal as just INR 500 in the beginning.

Investors are free to choose their frequency of investment which may range from a weekly, monthly, quarterly or semi-annual basis as per their financial convenience.

In order to understand what is SIP in mutual funds and how it operates, you need to be thorough about the features and functions of SIP schemes in India.

Investing in SIP schemes is safe and secure because investors can make long-term investments in instalments at predefined intervals. Instead of investing lump-sum amounts in any mutual fund, investing in intervals is safer.

Benefits of SIP

If you have just started investments, it is crucial to understand the meaning of SIP and the benefits that you may expect after investing in SIP schemes in the country.

1. You are free to make investments in as many intervals as you want. This way, you can avoid making lump sum investments which make the entire procedure safe and secure from the beginning.
2. The minimum investment amount remains around Rs.500-Rs.1000 for most of the SIP schemes across the country. Therefore, anyone can invest in these schemes irrespective of their background, profession, and status.
3. Top SIP mutual funds such as ICICI fund, HDFC fund, SBI fund, and the other leading funds, offer a tremendous return rate compared to other schemes of investing in mutual funds.
4. After you start investing in any SIP scheme in India, you are free to adjust the SIP amount at your convenience. You are also free to choose for how many months or years you are willing to invest for.
5. For new investors, investing in SIP schemes lends a sense of financial discipline, eventually leading to better efficiency in managing your finances and investments.
6. The average cost of these schemes tends to be on the lower side compared to the other mutual funds in the market.
7. A systematic investment plan can be the best sustainable method For anyone looking forward to investing in a sustainable scheme in 2021 without taking much financial risk.

Features of Systematic Investment Plan (SIP)

The significant features of SIP are mentioned below.

1. No lumpsum investment needs to be made if you decide to invest in SIP schemes in India.
2. You need to follow a SIP calculator to calculate the return rate offered by the SIP fund that you are aiming to invest in shortly.
3. The least amount that anyone can invest in SIP schemes is INR 500. These schemes are flexible, which allows you to increase the amount whenever you want. They also enable the investors to choose the interval periods as per their convenience.
4. In the overall scenario, SIP schemes save you a lot of time considering how the market experts manage your money and make you hassle-free throughout the entire procedure.
5. Compound interest leads to an exponential growth of your money eventually after you start investing in SIP schemes.
6. There is no penalty or fee charged if you decide to exit the plan before the predefined period ends.

How does SIP Work?

Once you understand the answer to SIP investment and how it operates, it is essential to know how the entire procedure occurs.

SIP works in a similar way the mutual fund works in India. Money market experts of the industry handle your money after you invest. SIP schemes make your money grow eventually and offer you a good return rate by the end of the scheme.

For SIP schemes, instead of simple interest rates, compounding interest effects are at work. This is why the return rate tends to be higher than simple mutual funds in the market.

Why Should you Invest in SIP?

Some of the significant reasons for which you should invest in SIP schemes in 2021 are:

1. The investment amount is very low compared to other mutual funds in the market.
2. SIP schemes are flexible, giving the investors complete freedom of how much they want to invest, how long, and when they want to exit the plan.
3. It is comparatively safe to invest in instalments instead of making lump sum investments of huge amounts of money. The risk factors involved with SIP schemes are on the lower side.
4. It is a convenient process that does not require investors to be involved much during the procedure. All they need to do is to provide the bank with their personal and financial details. After the process begins, they are not required to do anything.
5. Rupee cost averaging helps the investors to beat the constant fluctuations that take place in the market. It also ensures that the return rate remains unchanged irrespective of the changes in the market.

How to Invest in Mutual Funds via SIP?

Before investing in any SIP scheme, the foremost step you need to take is to compare the mutual fund rates and SIP rates in the contemporary scenario to find the best option that suits your investment goals.

Some of the leading SIP mutual funds currently offering some of the best return rates in 2021 are Axis Bluechip Fund, DSP Equity Fund, HDFC Balance Advantage Fund, Kotak Standard Multicap Fund, ICICI Prudential Bluechip Fund, Aditya Birla Sun Life fund, to name a few.

All these mutual funds offer a return rate that remains around 15% to 18% when the monthly investments remain to be 5000.

Once you understand the answer to what is SIP account and how it operates, it will be easier for you to go through the fund’s records and evaluate the return rates so that it is further easy to decide which SIP scheme you should invest in.

The SIP scheme you choose should be in conjunction with the bank. Always go for the leading banks like the HDFC Bank, Reliance Bank, SBI and the other top mutual funds to avoid any issues during the procedure.

SIP vs Lumpsum Investment

If you have no prior experience in investing and are looking for sustainable methods to invest in mutual funds in 2021, SIP can be the best option for you. Compared to lump sum investment schemes, SIP schemes are more flexible. You are free to choose the amount of money you spend in the beginning. 

You can also increase the amount once you start making higher income in the future. You also have the option to determine for how long you want to invest. You are also free to exit at any point during the procedure. Once you understand what is SIP in a mutual fund and how it operates, it would be beneficial for you to invest in a SIP scheme.

Lumpsum investment procedures, on the other hand, are not flexible enough for new investors. Also, the fact that you have to invest a huge amount of money at once makes it more likely to be unsafe with respect to certain aspects of the market.

SIP schemes involve compounding interest rates that eventually makes your money grow in the long run.

FAQs

✅Who are the SIP investment schemes more suitable for?

Ans: Anyone who is willing to invest in a sustainable scheme that brings them more return of return can invest in SIP schemes. People belonging to the rural areas, low-income groups, and those new to the investment scenario tend to invest more in SIP schemes.

✅Is it safe to invest in SIP schemes in India?

Ans: It is safe to invest in SIP schemes. They are also some of the most profitable schemes because they bring good returns despite minimum investment. 

✅Can I customise my SIP amount?

Ans: Although most investors choose to pay a fixed amount every month, they are free to decide how much they want to pay and for how long.

✅Which SIP scheme gives the highest return in 2021?

Ans: There are many good SIPs. The numbers keep changing, and mutual fund investments change as per the market conditions. Hence it is best to do thorough research before starting any SIP.