What Is SIP? What Are The Benefits Of SIP
We Indians like to know every single detail about anything before investing. Whether it is simple insurance or we are going to invest in share market or I am going to invest in tomorrow’s fund. We prefer to invest on anything only after taking complete information. Today we are going to talk about SIP (Systematic Investment plan) in this article. Apart from this, in this article of ours today, we will also know that What are the Benefits of SIP?
Through SIP, you indirectly invest your money in the stock market. You invest your money in a completely systematic way. This is the reason why the trend of SIP has increased a lot in a country like India. People are now investing a lot of money in the stock market through SIP.
If you are also thinking that whether you should invest your money on SIP or not? So you have come to the right place, here we are going to tell you about the benefits of SIP. The information we are providing to you here. From that you will understand whether you should invest on SIP or not. Apart from this, in this article, we will also provide information about what are the advantages and disadvantages of investing in SIP.
What are the Benefits of SIP?
Before proceeding further, you should know about what is SIP? Because without knowing that you cannot decide whether you should invest on it or not? Let us quickly know what is SIP?
What is SIP?
SIP is (SIP – SYSTEMATIC INVESTMENT PLAN). It is not any kind of investment plan but rather a means of investing in stocks and funds. In a mutual fund, a fund is created by pooling the money of many investors, which is managed by a professional fund manager. Which is called SIP.
One can invest in Mutual Funds only through SIP which is in the form of a regular investment. In a mutual fund scheme, you deposit money during a fixed period or interval, usually every month. You get a substantial amount of money on the money you invest after a certain period of time. This is SIP.
What is SIP? You must have got some information about it. Below we will get information about what are the benefits of SIP? Along with this, we will also take information about whether you should invest on SIP or not.
What are the benefits of SIP? Benefits of SIP (Systematic Investment Plan)
Before investing on anything, it is very important for you to be aware of where something is going to benefit you. So there are its advantages and disadvantages as well. Therefore, before investing on SIP, it is very important to know that where there are advantages of investing in SIP, there are also disadvantages.
What are the benefits of SIP?
We have tried to explain you about the benefits of SIP through the following points.
- Do you need a small amount to do SIP?
- In SIP you have to take less risk.
- SIP gives you excellent returns in future.
- Investing on SIP gives you the convenience of a professional fund manager.
- You also get the facility of compounding benefit on SIP.
- There is also the benefit of rupee cost averaging.
- Diversified disinvestment facility is also available.
- You get flexibility on SIP.
- Liquidity facility is also available on SIP.
- You can make automatic investments on it.
- You can invest in very low cost.
- SIP is a safe investment vehicle.
Let us take a detailed look at all these benefits below. Above we have told you about the benefits of SIP.
1. Low cost required on SIP
As we told you above that through SIP you indirectly invest your money in the stock market. You do not need a lot of money to start this type of investment. Rather, you can start this investment with a very small amount.
No person is able to invest easily in the big stock market. But through SIP, you can start investing on the stock market even with a small amount. If you have only ₹ 500, then you can invest on SIP by investing ₹ 500 every month.
2. SIP is less risky.
Like if you invest directly in the stock market. In which you have to take more risk. By investing directly in the stock market, you manage your own funds. Because of this it is very risky. But, if you invest your money in the stock market through SIP. So they are managed by professional fund managers. Due to which the risk is reduced in it.
You can do SIP in both equity and debit mutual funds. The degree of risk involved in SIP of debit funds is very less. Due to investing in the same stock market, there is some risk in equity funds.
But, if you invest over the long term, then the risk is negligible. So whenever you are investing on mutual funds through SIP. So, make sure that you are investing for the long term.
3. Excellent returns are available on SIP.
If you invest disciplinedly through SIP over a long period of time. You get excellent returns on investments made over a long period of time. Which is much higher than any government scheme or other scheme.
Many investment options do not even provide returns equal to inflation. But investing through SIP over the long term can fetch you returns much higher than the average inflation rate.
Investing over a period of 10 years or more, you can get 10% to 20% returns on SIP. The amount you get may go up or down depending on the performance of different funds. We are giving here some figures which have been given by SIP in the last 10 years.
- Kotak small cap fund – 17.8 to percent return
- SBI Contra fund – 11.44% return
- Nippon India focused equity fund – 15.78% return
- My asset emerging bluechip fund – 22.25% return
The figures we have given above, these companies have given this return to their investors within the last 10 years.
4. Facility of Professional Fund Manager on SIP
If you invest through SIP, the money invested by you is managed by a professional fund manager. Due to this there are chances of reducing your losses. You get this facility in Systematic Investment Plan. So that you take less risk by investing.
On the other hand, if you invest directly or directly on the stock market, then you manage your funds yourself. Because of this, you have to do a lot of research about the respective fund. Apart from this, you have to be regularly updated with the information related to the stock market.
But, if you are an investor who does not have much time to do as much analysis as possible about the stock market. And the information related to the stock market should always be updated. So, there can be no better investment for you than SIP.
In mutual funds, you get the services of professional fund managers. These fund managers are market experts who are very experienced. Because of this, they invest the money you have invested in the right place. He manages a large fund. Because of this, it costs you less to invest in SIP.
5. In SIP you get the facility of compounding benefit
Compounding Benefits means that you get returns even on the returns earned. That is, the interest you get on the money you invest. You get returns on that too through compounding benefits.
In SIP, you get to see tremendous compounding benefits. Provides you a good return on the maturity amount when invested over a long period of time. This compounding also works very well for your pill goals.
How do you benefit from compounding benefits? We want to explain this with an example and data. Here we have tried to explain to you through a monthly SIP of only ₹ 500, on which you are getting 12% annual return. How much compounding benefit will you get on that.
|Investment period||Invested Amount||Maturity|
|5 वर्ष||3 लाख||4.12 लाख|
|10 वर्ष||6 लाख||11.6 लाख|
|15 वर्ष||9 लाख||25.2 लाख|
|20 वर्ष||12 लाख||50 लाख|
|25 वर्ष||15 लाख||95 लाख|
|30 वर्ष||18 लाख||1.77 करोड़|
|35 वर्ष||21 लाख||3.25 करोड़|
In this example, you can clearly see that as the time period of the investor is increasing, the amount of return is also increasing. If you deposit ₹ 500 per month for 35 years, then the amount you get on maturity in this way becomes Rs 3.25 crore. To get these good returns, you need to start SIP as soon as possible. Even if the friend is little, why not?
Let’s say if you are 20 years old and you start SIP with just ₹500 per month. So suppose when you are 60 years old then you would have made a total investment of Rs 49 lakhs on which you will get maturity amount of more than 5 crores.
6. Rupee Cost Averaging also benefits
If you invest in SIP, then you also get the benefit of rupee costing averaging. In SIP you are allotted units on the basis of current float as per your investment.
When the stock market goes up, you get fewer units. Similarly, if the market is down, you get more units. Seen this way, your cost of investment is always averaged.
If you do lump-sum amount SIP in mutual funds, then it was certain that you do not need to worry because you have not made your investments in the high market. Also, in SIP you never need to time the market.
7. Through SIP you make diversified investment.
If you invest on mutual funds through SIP. So in a way you invest your money in different portfolios of nickel funds. Such as stock market, government bonds, corporate bonds etc.
You get the benefit of all this together in a SIP which serves to further diversify your portfolio.
8. You also get flexibility in SIP.
Flexibility means, if you want to change your investment pattern now, you can do so easily. If you want to invest in six lock in period options like PPF, ULIP etc. then you can choose these SIP options.
Apart from this, you can redeem your investment in SIP as per your wish. In simple words, there is no lock in period or fixed price fear in SIP. Only, other than ELSS. You can redeem the SIP invested by you in full or partially anytime. It is generally seen that if you redeem it within 1 year, then generally 1% exit load has to be paid.
After one year i.e. if you redeem it anytime, then you do not have to pay any kind of fee. In investing like SIP, you also get the flexibility related to SIP amount. You can change your SIP amount whenever you want.
9. SIP provides instant liquidity
If you invest through SIP, then you also get the facility of instant liquidity. Whenever you need money or have an emergency, you can get your money transferred to your account immediately. Usually in 2 to 3 days or the money comes into your bank account.
It is also very popular among many investors due to easy liquidity. Because of this, most of the investors prefer to invest in SIP.
10. SIP also provides the facility of automatic investment
The biggest advantage for investors of investing in SIP is that you do not have to spend extra time to transfer money to your investments. Nor do you make frequent transactions to pay your installments. Nor do you need to go to the bank for this.
Just once you have to get your SIP scheme done through ECS (Electronic Clearing System) or Bank Mandate, after that your installment payment automatically gets requested on the investment chosen by you on the due date.
11. You can invest in SIP with very low cost.
The cost of investing in SIP is very low. This cost is directly deducted from your returns in the form of expense ratio. Here the expense ratio can be around 1% to 2%.
This expense ratio further reduces in direct investment plans like mutual funds. Apart from this, you do not have to pay any kind of fee. On the other hand, if you want to start SIP, then you can start SIP with only ₹ 500.
12. SIP is also a safe investment.
Many investors are worried that the platform through which they are doing SIP will be closed after a few years or they will run away with your money, so what will happen to the money you have invested?
In this situation, you do not need to panic at all as these platforms are registered and regulated by SEBI. It is very important for you to know that such platforms or mobile Android apps do not keep any kind of money with them. The amount instructed by you is instantly sent to the respective funda house. In this way, SIP is a safe investment method.
How to invest on SIP?
To invest in SIP or Mutual Fund, it is not necessary that you spend a huge amount to invest. You can do SIP even with a small savings of just ₹100. There are also many such mutual fund schemes in the market in which you can start investing through just ₹ 100 monthly SIP.
If you invest in SIP for a long period, then you definitely get tremendous benefit of compounding in it. There are many such SIP schemes in the market which have made crores of funds with monthly investment. Like ICICI Prudential Value Discovery Fund, when this SIP was started, a SIP investment of just ₹ 10000 per month turned into a fund of ₹ 1.00 crore in 17 years. This SIP Mutual Fund was launched in the year 2004.
What is the procedure to invest in Mutual Fund or SIP?
If you want to invest in mutual funds or SIP then it is very easy. For this, you have to complete your KYC (Know Your Customer) in the respective platform or android.app. You can also do this process very easily. If your Aadhaar is linked with your mobile number then you can easily follow the online KYC process and within few minutes your KYC will be done.
You can use any payment mode as per your convenience for investing in SIP. The entire process here is digital and contactless. All you have to do is pay some money every month to the fund house for your monthly investment limit. With which you can get it done from your bank through automatic payment mandate. Apart from this, nowadays many mobile apps also give you the facility to make online payments.
Investment in SIP is done with complete transparency. Here you can see online whenever you want in which stock your money is being invested by your fund manager. Apart from this, you can check the performance of your scheme everyday. Also Read – How To Save Money From Salary | How to start saving money?
Which companies are good for SIP?
In this way, after the advent of digital revolution, many such companies have come in the world of internet which provide investment facilities like SIP. But still the following companies are trusted more by most of the investors.
- Angel Broking
- Motilal OswL
- ICICI Direct
- IIFL/India Infoline
How does investing on SIP make your money grow?
Whenever you invest on mutual funds through SIP, you are allotted some units in return. Let us understand this through an example. Let us assume that I have invested in SIP of a company XYZ. The NAV (Net Asset Value) of the company’s mutual fund is currently ₹20.
Let us assume that we have invested ₹1000, of which the cost of one unit is approximately ₹20. Accordingly, we are allotted 50 units. If we invest in it after a few years and the SIP NAV of XYZ Company becomes ₹30 then the value of 50 units to you will increase to ₹1500. In such a situation, you can clearly see that if you do SIP for a long period, then definitely you are going to get benefit in it.
Some other advantages of investing in SIP.
- If you want to get a regular income by investing in SIP, then you can choose Dividend plan in SIP. In this type of SIP, you get dividend from time to time.
- You can also save your tax by investing in ELSS scheme of mutual funds. In this, you are given an investment exemption of up to Rs 1.50 lakh under Section 80 (c) of Income Tax.
- If you do FD etc in the bank to save your money. So we want to tell you that most of the banks give less return than inflation on their ID. In such a situation, SIP can be a great option for you.
- You can stop your SIP anytime without paying any penalty or damages.
- If you are short of money, then you can also stop your SIP installment for 2 months.
- There is no limit to the amount of money you can invest in typing. You can invest in it according to your capability. You can even start SIP as low as ₹100.
Should you invest in SIP or not?
By reading this article of ours today, you must have understood whether you should invest in SIP or not? Here, we have provided you complete information about the benefits of SIP.
After reading our complete article, you too can now definitely and feel free to think whether you should invest on SIP or not? If you do not want to invest directly in the stock market, then you can invest in it through SIP. This can prove to be a great investment for you. Along with this, you can also accumulate a substantial amount for yourself in the future.