What Is Systematic Investment Plan?

What Is Systematic Investment Plan?

A systematic investment plan, more commonly known as SIP is a very popular method of investing in mutual funds. It involves investing a fixed amount of money regularly through your bank account. The payment can be made monthly, semi-annually, annually, etc.

Functioning of SIP

The functioning of SIP is a quite simple process. According to the mutual fund scheme you have chosen, a fixed amount of money is debited from your savings bank account regularly. In the case there is not enough sum left in your account, the SIP will just not go through without any kind of penalty or fine.

You can make use of SIPs differently at all stages of your career. There are several plans and schemes to choose from according to what suits your income structure and other financial preferences. SIP  can be started at the early career stage to establish financial stability. During the early thirties to fifties, which is usually the career-building stage, one can use SIPs for the education of their children. Accumulating funds from an earlier stage for higher education will ensure that money doesn’t become an issue when your kids want to follow their dreams. One can also start planning their retirement at this stage. Then comes the pre-retirement stage during which you have the chances to save the highest, whether it be for retirement planning or any other factor.

Benefits

  • By choosing a SIP, you can start investing in mutual funds with small amounts. There is no need to make big investments right when you’re getting started.
  • The process of investing in mutual funds through SIP is very simple and disciplined, saving you the hassle of remembering the payment schedules.
  • SIP is a very commodious mode of investment as the bank does all the work as instructed by you.

There is no such thing as a right or wrong time to invest through SIP which is the best part about it. You are not bound to wait for the right time or situation in the market to invest. One can just simply choose a fund to invest in, select a date of the month and that’s it.  The investments can be automat, making the process even easier and hassle-free.

Two of the most important reasons for investment, especially in India are buying a house and proper health savings. Planning carefully and investing through mutual fund SIPs can come in very handy in both these situations. SIPs help you create an emergency fund that can be of use in any health issue.

You should increase your SIPs as your income and savings grow. The longer the investment tenure, the larger is the prospect of wealth generation. The SIP top-up service can boost your SIP installments when your income rises.