Mutual funds: Make The Most Of Volatility With SIP

The Systematic Investment Plan (SIP) is an investment option provided by Mutual Funds that enables investors to invest a specified amount in a Mutual Fund scheme on a regular basis, such as once per month or once every three months, as opposed to doing so all at once. The instalment amount could be as little as INR 500. It is convenient since one may direct the bank to automatically deduct the payment each month.

 

 

SIP has grown in popularity among Indian Mutual Fund investors because it encourages disciplined investing without much worrying about market volatility or market timing. Mutual Funds Systematic Investment Plans are one of the most efficient ways to enter the field of long-term investments.

 

How does SIP Work?

 

From the start of the SIP investment through the point at which the money is invested in a mutual fund plan, there are different stages:

 

• Selection of Mutual Fund: Selecting a mutual fund plan to invest in is the first stage in the SIP investment process. 

 

• Investment Frequency: Selecting an investment frequency is the next stage in the SIP investment journey. The most common option, particularly among salaried investors, is a monthly frequency because they generally receive their salary on a monthly basis. However, one can decide to invest weekly, quarterly, semi-annually, or annually if they have good reasons to pick a different frequency.

 

• Setting up SIP with a mutual fund scheme: Along with a KYC form and any necessary supporting documentation, the investor must fill out a mutual fund investment form. The form must include information on the investment, including the scheme name, option (dividend or growth), amount of the instalment, SIP period, and SIP frequency (daily/fortnightly/monthly/quarterly).

 

• Automatic debits and unit allotment based on NAV: Money will be deducted from the registered bank account after everything is set up. Based on the date users chose when setting up the SIP, it will be deducted once a month. This procedure is automated. Based on the frequency users specified when setting up the SIP, money will  keep debiting from the bank account

 

After the money is debited, users will soon receive acknowledgement about their funds being invested. The acknowledgement also specifies how many units they have been given based on the NAV (net asset value). Due to daily fluctuations in the NAV, the number of units assigned to each contribution may vary.

 

Features of Systematic Investment Plan

 

• Investment: In contrast to a lump-sum investment, where investors require a large amount of money for investment, SIP enables one to begin a mutual fund investment with a smaller amount.

 

• Regular Investment Intervals: SIP in mutual funds refers to regular investments. Investors have the option of selecting a weekly, monthly, or quarterly investing cycle. Regular investment strategies help individuals develop financial discipline. Compared to a one-time single investment, a regular investment is a preferable choice for investors. Users gain from rupee cost averaging and the investment is spread out over time.SIPs can be started with as little as Rs. 500 each month. One can increase the Systematic Investment Plan amount as the income rises.

 

• Fixed Investment Amount: When initiating a Systematic Investment Plan, the investment amount is predetermined. To make an additional contribution, one can use the “SIP-Top Up option” provided by different mutual fund houses.

 

• Option to Pause Investment: The investment can be “paused” for a brief duration of one to three months. Which is useful in times of financial hardship. The Systematic Investment Plan does not stop during ‘pause’.  At the conclusion of the pause period, it begins automatically. 

 

• No Cap on Maximum SIP Amount: The SIP investment minimum can be as low as Rs. 500. On the other hand, generally there is no cap on the maximum investment amount under the SIP plan. Through the SIP investment plan, individuals have the opportunity to invest any amount of money as an investor. 

 

• Cancel SIP: There is a cancellation option for SIP investments. By going into the account online and choosing to cancel the SIP at any moment, users can stop the SIP investment plan or cancel it for any reason. In order to cancel the SIP using the offline mode, one must fill up and send a form to the mutual fund house. 

 

Factors to Consider While Starting SIP Investment Plan

 

When making SIP investments, investors can keep the following things in mind:

 

• SIP Amount: Investors have the option to choose the investment amount when it comes to SIPs. Systematic Investment Plans can be started with as little as Rs. 500. Investors can choose any amount based on their monthly income (cash flows) and the goal of the investments. 

 

• Frequency of SIP: Systematic Investment Plans (SIP) typically have weekly, monthly, or quarterly frequency. The SIP investment method is completely up to the investors. The salaried individual, for instance, receives a monthly salary. A monthly SIP frequency can be ideal for him. One of the optimal methods for determining the SIP frequency is to choose a period that corresponds to the cash flows.

 

• SIP Tenure: The SIP duration can be one, three, five, or ten years, depending on the investor’s investing objective. There is therefore no set duration; anyone can invest till their financial target (investment objective) is met.

 

Volatility

 

Despite the fact that retail investors have displayed a great deal of maturity when it comes to sticking to their systematic investment plans (SIPs) and that new investors have begun participating throughout this volatile phase of the market, many investors may try to book profits now given the volatility of the market. Although market volatility does come and go, a SIP will have the best results for them if it is left untouched. Investors need to be aware that volatility is part of the nature of the market. Investors should resist the urge to take profits right away. Instead, they ought to continue investing so that their funds might grow over a long period of time.

 

In fact, when markets are declining, investors are frequently driven to book short-term gains. They end up “buying high and selling low,” which is the complete opposite of what they need to be doing. SIPs give investors the opportunity to invest frequently, which is a smart approach to stop this pattern.

 

Due to the advantages of rupee cost averaging, investing in a SIP during times of market volatility can be advantageous to the investor. SIPs are actually intended to help investors weather market volatility by assisting them in increasing their purchases when markets are down and vice versa, so they gradually lower their overall cost of acquisition through rupee cost averaging. Investors can therefore avoid the problems of trying to time the market by engaging in disciplined investing and adopting a goal-based approach. SIP investments are a wonderful way to build a long-term portfolio.

 

What are Mutual Funds?

 

A mutual fund is a pool of money managed by a professional fund manager.

 

It is a trust that takes money from several participants with similar investment goals and invests it in stocks, bonds, money market instruments, and/or other securities. By determining a scheme’s “Net Asset Value,” or NAV, the income or gains from this collective investment are then equitably distributed to the investors after any appropriate costs and fees have been subtracted. Mutual funds are comprised of the funds contributed by a large number of investors.

 

Professional fund managers invest the money raised in mutual funds in accordance with the scheme’s stated goals. In exchange, the fund house levies a  fee that is subtracted from the investment. The Securities and Exchange Board of India has established specific rules that apply to and control the fees that mutual funds may charge (SEBI). Mutual funds provide a variety of investment options across the financial spectrum.

 

Conclusion

 

“SIP” stands for the systematic investment plan. A substantial corpus of long-term wealth could be built using the effective yet practical Systematic Investment Plan. The power of compounding and rupee cost averaging work in one’s favour. It is practical and aids in creating a responsible habit of consistent saving and investing in the long run. It enables one to invest consistently over time in a specific mutual fund programme. With the SIP investment plan, investors have the option to choose the investment amount and frequency while still receiving the benefits of investing in mutual funds.

 

Frequently Asked Questions (FAQs)

 

• What are some benefits of SIP?

 

Some of the benefits are: 

 

• • Power of Compounding: A systematic investment plan aids in compounding returns over the duration. To put it another way, when you invest using a Systematic Investment Plan, the earnings are reinvested back into the mutual fund scheme. As a result, when returns are reinvested, the compounding effect comes in, which helps to create more wealth.

 

• • Low Investment: The Systematic Investment Plan is a fixed monthly investment amount. This lessens the stress associated with making a sizable lump-sum investment all at once. With SIPs, one can invest any amount that feels appropriate for them and gradually build up a sizable corpus.

 

• • Financial Discipline: In order to invest in a SIP mutual fund, investors must invest a certain amount of money at regular intervals. As a result, people develop financial discipline and prioritize saving and investing for the future. This indicates that they are developing financial discipline and consciously making plans to meet their needs in the coming years. 

 

• • Simple and Convenient: It makes investing more convenient in the sense that people can choose any amount even as less as Rs. 500 or more based on the cash flow. The SIP investment process is also automated. Once everything is in place, there is no need for constant worry.  A fixed amount gets deducted from your bank account. This set sum is deposited with the mutual fund company to purchase units. The mutual fund units are credited to the mutual fund account.

 

• • Professional Management: Mutual funds are managed by experts who have a track experience as portfolio managers. Additionally, they are supported by a group of research analysts that keep an eye on the markets and assess investment prospects. Investors gain from the fund manager’s experience because SIP investments are mutual fund investments. This is crucial for someone who is unfamiliar with the markets or financial terminology. SIPs essentially allow investors to delegate their investment to a fund manager, who will manage the assets of the mutual fund to maximize returns for its investors.

 

• What are some important things to consider before beginning the SIP?

 

A few points concerning the mutual fund scheme for which you start the SIP should be taken into account before you start your first SIP. 

 

• • Goals: Establish a connection between your investments and significant life events that could demand a sizable sum of money, such as a larger home, your child’s education expenses, or your retirement. As a result, it will be simpler for you to take the necessary corrective action when necessary and will help you stay on top of your goals and the performance of each of your investments.

 

• • Time horizon and level of risk tolerance: When you have a goal in mind, you can estimate the number of years it will take to accomplish it. Generally, longer time horizons allow you to potentially take greater risks than shorter periods. Some investors also stick to short-term mutual fund investments if they don’t want to take on a lot of risks and are getting closer to retirement. Along with the time horizon, your income and risk tolerance are also important factors.  For instance, if you regularly make money, you could be more willing to take risks since you have a reliable monthly cash flow. Additionally, some investors find it difficult to hold onto their investments through a sell-off. They can lose money if they sell in a panic as the markets are falling.

 

• • Mutual fund category: The fact that there are so many options available makes this an important factor. Your time horizon and level of risk tolerance should be taken into account when choosing a mutual fund category.

 

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