When it comes to investing, most of us desire something trustworthy with the potential for higher returns in the long run. Systematic Investment Plans (SIPs) fulfil these requirements, making them a preferred investment option in India. A hassle-free and increasingly favoured method for individuals looking to grow their wealth without dealing with the intricacies of investment management. This article will explore why SIPs are considered a preferred investment choice. We will also explain how they operate and how a mutual fund SIP calculator can simplify your investment strategy.
What is an SIP?
SIP is an investment strategy enabling individuals to invest a fixed sum of money at regular intervals, usually monthly, into a mutual fund scheme. This approach involves investing amounts regularly to leverage market fluctuations and steadily grow an impressive portfolio over the long term.
Investors interested in mutual funds but interested in investing smaller amounts of money over time can consider SIPs. It provides a flexible and safe method for long-term investment, leading to potential advantages of compounding returns and spreading out investment costs over the long term.
Advantages of Systematic Investment Plans
Many factors make SIPs a popular choice among investors today, so let’s discuss some of the main advantages:
- Affordable and Easy to Use
One significant benefit of opting for an SIP is its affordability. You don’t require a considerable sum of money; the starting point for investing in an SIP can be as little as Rs. 100 or Rs. 500.
- Compounding Power
Another benefit of SIPs is the impact of compounding over time, a critical factor that makes them a popular choice for investors seeking long-term growth potential. Compounding works by reinvesting the returns generated from your investment back into the amount continuously over time. Using a mutual fund SIP calculator can help investors visualise how regular contributions grow over time, illustrating the potential returns through the power of compounding.
- Rupee Cost Averaging
When you invest in an SIP, you consistently invest an equal amount of money at regular intervals without regard for market fluctuations. This strategy is referred to as cost averaging. Purchasing more units when the market is down and fewer units when it’s up helps balance your investment costs over time and minimises the effects of market ups and downs on your portfolio’s value.
- Flexibility and Discipline
SIPs offer great flexibility, allowing you to initially choose the investment amount and frequency. Although you can modify the investment amount or pause/stop the SIP, following specific procedural steps with your fund provider may be required.
Why are SIPs the Best Option for Different Types of Investors?
SIPs are ideal for a range of investors irrespective of their age or financial expertise for the following reasons:
- For Young Investors
When you are new in your career path or just getting started, setting up SIPs can be a method for laying the foundation of your financial well-being and progress. By making regular contributions, you can kick off your savings journey towards achieving milestones like owning a home or preparing for retirement. Taking the step sooner also grants you the benefit of compounding interest, potentially resulting in significant financial growth.
- For Risk-Averse Investors
SIP can be a good starting point if you are still deciding whether to enter the stock market because of the risks involved. Consistently investing equal amounts helps reduce the effects of market fluctuations, making SIPs a favourable choice for investors seeking stable returns.
- For Long-Term Investors
SIPs work well for individuals with a significant time horizon for investments. If you are planning for a long-term goal, whether it’s 5 years, 10 years, or 20 years away, an SIP can be a great option. It enables you to navigate through temporary market ups and downs and take advantage of compounding benefits in the long run.
How to Start Investing in SIPs?
Starting an SIP investment plan is simple and user-friendly. Follow these steps to start investing in mutual funds through ICICI Bank mobile platforms:
- Download the iMobile app from the Play Store or App Store and log in to your account using your ID and password.
- Get to the “Invest” section and select “Mutual Funds”. The page for investment in mutual funds through SIP opens.
- Please note that completing a one-time KYC for seamless investments through SIPs is mandatory as per SEBI guidelines. It’s a quick process that is integrated with the Digilocker account.
- Decide on the amount you wish to invest regularly. This amount will be auto-debited from your bank account on a recurring basis, helping you build a disciplined investment habit.
- Choose a convenient date for the SIP amount to be auto-debited from your account each month. This date should align with your financial planning to ensure sufficient balance for the investment. This final step activates your SIP, setting you on the path to wealth accumulation.
To maximise the benefits of your investments, you should choose suitable mutual funds based on your risk-taking preference and financial goals.
Conclusion
Investment in SIP plans efficiently reaches your objectives while experiencing the advantages of compounding interest rates and disciplined investment practices. Whether you are a beginner in the investment world or an experienced player in the market, SIP plans offer a cost-effective approach to expanding your assets over an extended period.
Using resources such as the mutual fund SIP calculator lets you strategically plan your investments and anticipate returns, making informed choices that align with your financial goals.