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Systematic Investment Plan (SIP) is a vehicle offered by mutual funds to help you save regularly.
It is just like a recurring deposit with the post office or bank where you put in a small amount every month. The difference here is that the amount is invested in a mutual fund.
The minimum amount to be invested can be as small as Rs 100 and the frequency of investment is usually monthly or quarterly.
Systematic Investment Plan (SIP) is a disciplined way of investing, where you invest fixed amounts at a regular frequency. You often decide to start saving and investing regularly, but get caught up in your day-to-day activities and forget investments. SIP is a time-tested investment approach, which helps bring in the much-needed discipline and has shown great results.
A SIP is a sensible way to invest in a fluctuating market by reducing your average cost. When you invest a fixed amount every month, the number of mutual fund units you actually buy depends on the market pricing (NAV) at that point in time. Therefore you tend to buy less units when the market moves up, and more units when the market moves down. This means that you are averaging out your cost. A SIP is like operating a recurring deposit account with a mutual fund.
You need don't need demat account but you should have PAN card and KYC (know your customer) done
EXAMPLE:
Person A started investing Rs 10,000 per month at the age of 30. Person B started investing the same amount every year at the age of 35. When they attained the age of 50 respectively, A had built a corpus of approx Rs 100 lakhs while person B’s corpus was only Rs 50.50 lakh. For this example, a rate of return of 12% compounded has been assumed. So the difference of Rs 6 lakhs in amount invested made a difference of about Rs 50 lakh to their end-corpus. That difference is due to the effect of compounding.
Particulars | Person A | Person B |
Age | 30 | 35 |
Amount invested | Rs. 10000pm | Rs. 10000pm |
Total Amount invested | 2400000 | 1800000 |
Rate of return | 12%^ | 12%^ |
Total Accumalation (Approx) | Rs. 100 lakhs | Rs 50.50 lakhs |
Hence the longer the compounding period, the higher the returns.
HOW TO GO AHEAD WITH SIP:
what is needed
1. Bank account
2. Pan card
3. KYC process should be done before investing
Visit AMC near to your place or consult mutual fund advisor, select the mutual fund, scheme and start investing
You have to specify the amount, date of the month when money will be invested, and duration of SIP.
For example, if you choose to invest Rs 5000, 10th of every month, for 3 years, the mutual fund will keep debiting Rs. 5000 from your account towards investment in the fund for 36 months.
You can also follow this on your own by investing Rs. 5000 every month. However you need to be very disciplined with your budget to achieve this.
FINAL CHECK LIST
· Decide the amount to invest every month (Calculator).
· Register for SIP in at-least 3-4 different schemes.
· Always register SIP for a longer tenure to ensure discipline. (You can always de-register if needed).
· Equity and balanced funds are generally recommended for long term investments.
· You may also do SIP in Debt funds for short term or long term depending on your risk appetite and objective.
· Renew your SIP once the tenure is over.
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