What is systematic investment plan and how it work?

Ever wondered why some people achieve their long-term goals successfully with Systematic Investment Plans? Because a SIP or a Systematic Investment Plan is considered as an ideal way to invest in Mutual Funds. Investment is not only essential to achieving your long-term goals but also to cultivate the habit of savings and making you a disciplined saver. With the help of SIP, you can invest on a weekly, monthly and quarterly basis where a fixed amount is auto-debited from your bank account and invested in Mutual Funds. Besides, Mutual Funds are flexible, therefore you can choose to discontinue or increase the amount as per your wish. And more importantly, investing through SIP’s is considered as the simplest and smartest way to get maximum returns out of your investments. Read on to know more about ‘Systematic Investment Plans’.

But, how does one get started?

Most of the industry experts who have been in this industry for decades are all die-hard followers of ‘invest and hold’ strategy. By applying this strategy an investor can hold and buy stock for a longer period of time in spite of the fluctuations in the market. On the other hand, it is believed that portfolio rebalancing across assets such as debt and equity is a must. But, it is still advisable for one to look for systematic investment plans. In the longer run, it not only helps you to smartly plan your finances but also, build wealth step by step over a period of time.

Importance of investing in Mutual Funds through Sip’s

In case you are a uncoordinated and an indolent investor, then investing through Sip’s can inculcate the habit of discipline and help you invest regularly without struggling with the market fluctuations, index level etc. For instance, you are keen on investing a fixed amount in the mutual fund scheme every month but all you need is to find time to do that and above all market conditions may bog you down. However, investing through SIP’s can put all your worries at rest since the money here is automatically invested in a scheme regularly without you putting efforts.

Advantages of using Systematic Investment Plans

1)    Inculcates the habit of discipline

The reason why SIP is strongly recommended by industry experts is that it brings discipline amongst the mutual funds investors. It is flexible and can be stopped at any point of time as investors may want to increase or decrease the amount being invested.

2)    Investment convenience

As the name suggests, a systematic investment plan is systematic in nature and allows the investor, an advantage of investing a small amount of money every month in a hassle-free manner. All he/she has to do is to instruct their bank to allow auto debit of the fixed

investment amount each month.. By doing this you can invest money systematically without missing out on any monthly installment.

3)    Rupee Cost Averaging

Rupee Cost Averaging (RCA) is another good reason why investors should consider investing in SIP. The investors here invest a fixed amount of money each month towards any investment vehicle which lets them purchase more stocks of a unit when the price of an investment is low. This eventually reduces the average cost of purchasing of the financial asset over the time. The SIP transactions are carried out in the following manner. It is done by using ECS or the Electronic Clearing System where the money gets debited from the bank in a hassle-free manner.

4)    Power of Saving

You can save a good amount of money only if you invest it at an early age. It will be difficult to meet your desired goals if you take long to invest. Also, saving at an early age will have a great impact on your wealth accumulation process. The following example will help you understand it better.

At end of Year	5%	10%	15%	20%
1	Rs.1,050	Rs.1,110	Rs.1,115	Rs.1,120
5	Rs.1,276	Rs.1,611	Rs.2,011	Rs.2,488
10	Rs.1,623	Rs.2,594	Rs.4,046	Rs.6,192
15	Rs.2,079	Rs.4,177	Rs.8,137	Rs.15,407
25	Rs.3,386	Rs.10,835	Rs.32,919	Rs.95,396

5)    Online Convenience

It is simple to invest in a paperless Systematic Investment Plan by following the three simple steps:

-    Register for a Systematic Investment Plan online

-    Post which you can fill in all the required details

-    Make sure you have all the required funds available

Conclusion:

Systematic Investment Plans not only offer transparency but also tax benefit with higher returns and so they have gained popularity in a short period of time. Therefore, SIP’s are important to make a robust financial planning and enhance your portfolio with regular investments.