who doesn't love to earn some extra income. with a systematic investment plan, commonly called SIP, you can invest a fixed amount of money at regular intervals in an investment plan of your choice. you can choose to invest a fixed amount monthly or invest a lump sum amount at one go.
how does a SIP work?
first you choose an investment plan and then set an amount of money to be debited from your bank account every month on a fixed date. you can choose an investment plan based on your risk appetite, investment horizon, and ultimate financial goal. the best part of investing through SIP is that you can start as low as ₹500 per month.
what are the benefits of using SIP?
there are many other benefits of using SIP for investment. here's are some of the reasons that make SIP best investment tool for all types of investors:
#1 you can start SIP with a small amount
a systematic investment plan (SIP) can be started with as little as ₹500 per month. the amount of money required to start an investment through SIP is considerably lower than other popular options. the SIP investment method is especially beneficial for people who have recently started working or are from a lower income group and want to start investing to meet their future goals.
#2 you can stop your SIP anytime
with SIP, you get the flexibility to stop it anytime you want. when you want to stop the SIP, simply opt out of the SIP plan. unlike recurring deposits (RD), there's no fine charged if you want to stop your SIP midway. in case of RD, the banks usually put a fine on you if you want to stop it. once your SIP is stopped, you can choose to withdraw the invested amount or let it continue to grow in the fund invested.
#3 you can skip SIP installment
in case you missed or don't have enough balance in your account to pay for your SIP in a certain month, you can simply skip your SIP for that period and continue investing from the next month onward without any problems. no fine or charges will be deducted against missed SIP. whereas, in case of RD, the bank would certainly charge a fine for missing a payment.
#4 you can keep adding new SIPs if you have more money
with every increment or new source of income, you can increase the SIP amount or start a new SIP plan in the same scheme or go for a new scheme. when you earn more, you should save more. it will help you earn extra money and be invested for the future!
#5 you can inculcate the discipline of investing regularly
one of the most common problems among many people is that they are not able to save money. as the earnings increase, people tend to spend more. most of the financial experts suggest that once you start earning, first invest and then spend. an SIP can help you inculcate the discipline of investing regularly. for this, you can fix your SIP debit date right after the date you receive your salary or income and reap the benefits of investing before spending.
#6 you can be safe from the volatility of equity market
you can start a SIP in mutual funds to be safe during the ups-downs of the equity market. it's highly advised that you should not invest in an inflated market. a SIP makes it simple for you, for example, when the market is up, your monthly SIP buys you less number of units of a mutual fund, whereas when the market is down, the same monthly SIP amount buys you more units of a mutual fund. hence, it keeps you safe from paying very high prices for any unit of a mutual fund. this process is known as cost averaging.
# 7 you get the benefit of compounding interest
when you invest through an SIP route, you earn interest on your monthly investment as well as the overall amount is added with your next SIP and gets invested again. so in the long run, your regular monthly SIP and the accrued interest is subjected to a compounding effect that ensures exponential growth of your earnings.
# 8 helps you stay away from emotional investing
it is challenging for an investor not to get emotionally impacted by the volatility of the market. if you do not keep your emotions away while investing, you will make impulsive purchases or sales which might not be safe for your investment. in the short term, the market can be highly volatile, hence, many financial experts advise to stay invested for a long period of time. the SIP plan helps you follow a disciplined approach to investing and stay away from reacting to short term volatility of the market.
# 9 you can keep a track of your SIP portfolio
you can also use a systematic investment plan to invest in mutual funds. the mutual funds are managed by asset management companies (AMCS) who nowadays provide an online platform for investors to manage their portfolio online. when you invest in a mutual fund, a user ID and password is generated that you can use to login and view/edit your SIP investment portfolio. with an online account, you can choose to track the performance of your SIP, switch/add different schemes, stop/start a SIP etc.
now that you know the benefits of investing through a systematic investment plan, start your first SIP today!
use the CRED SIP calculator to find out the amount of monthly SIP you need to invest to reach your financial goal.