What is SIP in Mutual Fund Meaning-What is SIP Mutual Fund Definition-Lumpsum vs SIP-Features-Characteristic-Pros-Advantages-Benefits of SIP

What is SIP in Mutual Fund with Examples, SIP vs. Lumpsum 

Everyone desires a new automobile, a larger home, a family trip, and so on. However, you cannot reach your objectives unless you work. A Systematic Investment Plan (SIP) is a simple way to invest in mutual funds. Then, let’s take a look at what SIP stands for and how it might benefit you.

When you use a SIP to invest in a mutual fund, you are purchasing units of the fund. SIPs do not require market timing because they benefit from both rising and falling markets.

What is SIP in Mutual Fund Meaning?

A SIP, or Structured Investment Plan, allows you to invest in your favourite mutual fund on a regular basis. Simply send a fixed monthly amount to the mutual fund of your choice to begin a SIP.

A Systematic Investment Plan (SIP) is a method of investing in mutual funds (SIP). It is reinvesting the same amount of money, as the name implies. Monthly, quarterly, semi-annually, and so forth. Investing in this manner on a regular basis can assist you in meeting your financial objectives.

A SIP, like a savings plan, allows you to invest over time. As a result, starting SIP investing in mutual funds does not require a large sum of money. SIP investing necessitates consistent savings. This encourages long-term fiscal restraint.

Example of SIP in Mutual Fund

Let us take an example to understand SIP (Systematic Investment Plan) in mutual fund. When we want to buy a house/car, support a wedding, or do something as simple as go on vacation, we apply for a loan. This is mostly owing to our incapacity to save a significant sum of money for these purchases/payments.

If we take out a loan to pay for these products, we can simply repay it with a manageable monthly EMI. We must, however, pay interest on the loan in addition to the principal. The primary distinction between a loan and a SIP is that a loan requires you to pay interest, but a SIP allows you to earn a high return while saving a considerable amount of money.

How does SIP in Mutual Fund Works?

A SIP enables you to save a predetermined amount of money over time. You can use this to purchase a certain amount of fund units. If you continue this for a long time, you will be able to experience the fund’s highs and lows. To put it another way, you don’t have to time the market. Timing the market is risky since you could invest at the wrong time. SIP investments eliminate this form of risk.

You can choose automatic investment after determining how long and how frequently to donate. Set up a monthly automatic deposit from your bank account to your preferred mutual fund SIP (or quarter, etc.).

Benefits of Investing Through SIP in Mutual Fund

With a SIP, you can begin investing lightly and gradually expand your money. Mutual fund investing has never been simpler. It also helps with budgeting.

Efficiency in Compounding

Profits compound as a result of the Power of Compounding. It is a return on investment in stock mutual funds. Assume you invest Rs 100 in an equity fund that yields 10% per year. This leaves you with a total corpus of Rs 110. You instead put it in a mutual fund. Your current equity fund returns are calculated using Rs 110 rather than Rs 100.

You can use the SIP to invest in equities funds and profit from compounding. To maximise the possibility of compounding, start your SIP as soon as feasible and invest on a regular basis. Let’s look at a real-world example of compounding. Assume Ramesh, Suresh, Mahesh, and Uday, all 30 years old, each contribute Rs 5,000 to stock funds on a monthly basis through SIP. Assume that equities funds earn 12% per year. Their savings are shown in the table below at 60.

Convenience

You can invest gradually using a SIP. Begin by investing Rs 100 every month.

Rupee Value on the Average

SIP enables you to invest in stock funds without regard for timing. A SIP invests the same amount every month, regardless of how the stock market performs. When the market is down, you can buy more equity fund units, and when the market is up, you can buy less.

You will soon be able to purchase equity fund units at a reasonable price. This reduces the sensitivity of your investment to market swings. A rupee cost averaging example: Assume you invest Rs 1000 in an equity fund on a monthly basis.

The stock market is volatile, and the Net Asset Value (NAV) of an equity fund varies. This means you won’t be able to invest at the same NAV every month. If you invested Rs 10,000 per month from January to June, your SIP investment would look like this.

You purchased 625 equity fund units over a six-month period for an average of Rs 96 (576/6) each unit. If you had invested your whole savings in January, when the NAV was Rs 100, you would have purchased 600 units (Rs 60,000/100). You now know the average unit price as a result of rupee cost averaging.

2 Times More Returns than RD

ELSS mutual funds have the potential to outperform bank fixed deposits and PPFs.

Ease of Investing

Investing in stock funds through SIP is a straightforward way to build money. Begin a SIP with as little as Rs 500. Your bank is instructed by the SIP to invest your monthly money in an equity fund.

SIP vs Lumpsum

Mutual funds are available in two forms: SIPs and lump amounts. A lump sum investment is when you invest a large sum of money in a mutual fund. So a SIP is preferable to a lump sum? You can choose using the criteria listed below.

Performance and Return of Funds

Putting a large sum of money into mutual funds pays off when the market is growing. This would be extremely beneficial to the invested funds. When the stock market is volatile, use Rupee-Cost Averaging and Compounding to invest. During a downturn, the investor purchases more of the asset. In a rising market, the investor purchases fewer securities. Long-term returns are even since average cost is taken into account.

How Much Money is Essential?

SIPs are perfect for saving little sums of money. You can choose between 500 and 5,000 rupees. Begin by investing Rs. 500.

Experience

A lump sum investment is made in one go. Profits are maximised by investing at the proper time. When the market is good, it is simple to make money. However, if the market suddenly falls, you could lose a lot of money. For wealthy investors, this may be a fantastic way to make money. SIPs can help inexperienced investors avoid taking on too many risks.

Investing in Sobriety

SIPs help investors better manage their finances in the long run. You can better manage your money if you invest a set amount each month. While your progress may appear incremental, you will have invested a significant amount of time and money. You can earn a lot of money over time by using the SIP method.

Lump-sum investments are not feasible for most people since they do not have enough money to invest consistently. Depending on your risk tolerance and experience, you can choose between SIP and lump sum investments. SIPs, according to experts, are preferred to one-time payments for stock purchases.

Selecting the Best SIP Funds

The Internet provides historical performance statistics for mutual funds in addition to current performance. You should also read about difference between regular vs. direct mutual fund as this will be useful to you. However, make certain that the fund you select has these qualities.

Goals

It is vital to invest in items that will help you attain your goals. Consider your needs and how they correspond with the fund’s objectives before beginning a SIP into a fund.

Risk Aversion

Invest only in funds with risk levels that are within your risk tolerance. If you are afraid of taking risks, invest in low-risk funds.

500 Million – Assets Under Management

A fund having 500 million in assets could assist in selecting from among them. However, unless you are willing to incur risks, you should not invest in funds below this level.

SIP Timeframe

Make your SIP as long as possible. Maintain your SIP flow. It makes no difference if you do not invest. So you let your money grow into a substantial quantity.

Fund House History

The reputation of the fund company indicates how well it has protected its investors from market fluctuations.

Why should you Consider Investing in SIP Mutual Funds?

The principle underlying SIP mutual funds is “Save First, Spend Later.” Small weekly, monthly, or quarterly contributions are preferred to large lump sum donations. SIP mutual funds provide benefits such as compounding, starting with as low as Rs 100 per month, and rupee cost averaging. Learn how to invest sensibly, how to use it in an emergency, and more.

Who Should Invest Through SIP?

If this is your first time investing in mutual funds, start with a SIP. This is ideal for people who have a steady income. Set up a systematic investment plan (SIP) to invest a portion of your regular income in mutual funds. You will need to save on a regular basis. This will gradually teach you financial responsibility.

Conclusion

A Systematic Investment Plan (SIP) allows investors to invest small amounts in mutual funds on a regular basis. A fixed sum is paid during the investment period. We hope the information about what is sip in mutual fund with examples, benefits, how it works and difference between SIP vs Lump sum mutual funds investment were useful.