What is SIP and how it works

What is SIP and how it works? – Systematic Investment Plan

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Hi friends today i will cover these topics in this article : What is SIP and how it works, What is Systematic Investment Plan, SIP Full Form, what is sip in mutual fund, what is sip investment

In this article we are going to tell you what is SIP and how does it work? If you want to save some rupees from your income every month and invest for the future of yourself and your family. So SIP is one of the best options for those who want to invest and create more wealth in the long term.

As we told you in our earlier article that you can create wealth in the long term with your money. For this you can invest in share market, mutual funds, but friends as you all know now. That a lot of risk has to be taken in the share market.

There is also risk in the same mutual fund, but our money does not have to be invested in it ourselves. Rather, it is handled by stock market savvy and mutual fund managers. But we are satisfied that those people are investing and managing our money in the share market. Those who are expert in this work and who also have years of experience, so let’s start friends.

SIP – Systematic Investment Plan

Systematic Investment Plan, which we call SIP in short form, is a method of investing in mutual funds. Where the investor first chooses the mutual fund scheme of his choice, and then invests a fixed amount in it at a fixed time intervals (fixed intervals).

Friends, SIP is such a plan in which you do not need to invest any huge amount at once. Rather, investing is started with a small amount in this, which then goes ahead and gives you high returns in the long term.

Friends, if you do not know much about the share market, then you do not even need to invest in the direct share market. You can invest a little every month in the share market with a small amount, that too by reducing your risk.

We all earn money very hard in our life and we want that we should create more and more wealth than our money, that too in the right way because creating wealth in the wrong way is wrong. If you want to make money in the right way, then for this you have to invest in the right place at the right time.

For those who do not have much information about the share market, it is best to invest through SIP, so that investors do not even need to take much risk. So friends, if you also want to create wealth with your money, then read this article of ours completely from beginning to end.

What is SIP (Systematic Investment Plan) and How it Works ?

As we told you that the full name of SIP is Systematic Investment Plan, SIP is an option to invest in any mutual funds. Through which you have to invest a fixed amount in the Mutual Fund of your choice at a certain interval. If seen, SIP is similar to Recurring Deposit i.e. RD,

In which you have to put some small amount every month. SIP works on regular and continue investment principle, instead of investing lump sum amount in mutual funds, SIP gives you the option to invest by dividing that amount into several parts. Because most of the people in our country either belong to the middle class or from the lower middle class, so it is very difficult for them to have a lump sum amount.

For example, if you want to invest Rs 10000 in mutual funds, then you do not need to deposit Rs 10000 in one go. Rather, you can invest only 1000 rupees every month by dividing 10000 rupees into 10 parts. By doing this you are able to invest in your Mutual Fund without affecting your other financial responsibilities.

In normaly mutual funds, you can start investing with a minimum of Rs 500 through SIP. You can invest it every week, every month or once in every 3 months, it depends on you, when you want to invest according to your convenience.

When we start SIP (Systematic Investment Plan), you have to tell your Mutual Fund House whether your SIP is for a fixed duration or is it a Perpetual SIP. Here the fixed duration can be from 6 months to one year to five years or more.

You can choose this time period according to your need. In Perpetual SIP, you can stop your SIP whenever you want, to do this you have to inform your Mutual Fund House about it, then they will stop your SIP. Investing through SIP makes it very easy to invest and you do not have to take too high risk in this.

Through SIP, you can invest a fixed amount every month in the fund of a company and buy units of that company. Let us try to explain you here with an example- Suppose the NAV of a company’s fund i.e. Net Asset Value is Rs 20.

So now if you want to buy 100 units of this company, then you will have to pay 2000 rupees. Instead of this Rs 2000, you will get 100 units out of the NAV of that company, now whenever you want to withdraw your money, you can earn profit by selling the units purchased of that company at the market price.

If the price of NAV of that company at the time of selling is more than 20 such as Rs 25 or Rs 30, then you will profit from selling at this time. But if you sold the units of the company at such a time, when the value of the units of that company is less than the value of the units purchased by you, then you will have a loss. Hopefully friends, now you must have understood how profit is obtained from mutual funds through SIP.

Benefits of investing in SIP – Benefits of investing in SIP

(1) Make You a Disciplined Investor: Friends, if you do not have much financial knowledge about the market, then SIP can be the best investment option for you. To invest through SIP, you do not have to spend much of your time in analyzing market movements. In this, the amount of SIP you have done is automatically deducted from your bank account every month and invested in mutual funds. In this, you do not need to do any kind of hard work, just you have to keep investing time to time. Apart from this, you have to keep in mind that whenever the amount of SIP is deducted from your bank account, there should be balance in your account on that date. In this way, SIP makes you a discipline investor, who invests a small amount every month.

(2) The Rupee Cost Averaging: This is mainly useful for investing in the share market, it gives you high returns over a long period of time. At the time of lump sum regular investment, when the price of NAV is low, then you can buy more and more units. And when the price of the NAV of that company becomes high, then you can get maximum return by selling at least units out of your purchased units. At such a time when the value of the company’s NAV in the share market is high, then you are able to buy fewer units at a higher amount. This facility reduces the risk of investing in a volatile market and keeps you secure in the high-low survival of the market.

(3) Power of Compounding: Friends, if you regularly invest a small amount in a mutual fund every month, then your wealth starts growing even faster. The only rule of compounding is that you keep investing regularly without stopping, if you want to become a millionaire as soon as possible, then you should start investing from today rather than now. Because even a delay of 1 year can stop you from becoming a millionaire, if you want to see the power of compounding, then you can read about Warren Buffett on the internet. Those who have established themselves as the richest man in the world today by using the power of this compounding.

We will try to show you a small sample of the power of compounding with an example here. So let’s start, suppose you invest 5000 rupees every month for 15 years, then you must have invested 9 lakh rupees in 15 years. Now if we assume 18% return for the year, then your 9 lakh rupees would have increased to 45 lakh 96 thousand rupees.

So friends saw how tremendous the power of compounding is, most people do not invest this small amount because it is their mind set that how much I will save with these 5000 rupees or these 500 rupees or how much wealth I will create. When I get lump sum money, I will invest in it.

But in reality it happens very rarely that you ever get so much money so that you can call yourself a rich person. That is why it is very important that even if you invest a small amount, you have been investing on a regular basis every month and seeing the power of compounding will create a whole ocean for you with those drops.

(4) Ease of Use: Investing through SIP becomes very easy, for this you neither have to visit the bank every month nor do you have to analyze the financial data of any company every year. You just have to go to your bank and fill up the form of a SIP and submit it to the bank and every month on the date decided by the bank, a small amount from your bank account which you will have fixed. That amount will keep investing in mutual funds by automatic deducting from your account and in this way you will not even know when you have slowly created wealth for yourself.

(5) Low Risk: Investing in mutual funds through Friends SIP is easy as well as low risk. You can understand this with an example, suppose I have Rs. 1,00,000/-. I invest these one lakh rupees by going direct in the share market or put it in any mutual fund. Now I do not know whether the share market will go up or down in tomorrow’s date, and if by mistake the share market goes down, then my 1 lakh rupees will be drowned in one go. Whereas this is not the case in SIP, because in SIP you invest only a small amount every month, in such a situation if the share market is down. Even then you will not lose much, and since you are playing for a long term, you will not sell the units of your mutual fund, but hold it and as the share market goes up, you will earn profit by selling your units. Is.

(6) Tax Benefits: Friends, if you invest through SIP, then you do not get any kind of tax in it. Neither while investing money nor withdrawing money, because under the Income Tax Act 80C of the Government of India, you get tax benefits in it. Whereas if you keep money in your bank account, then you have to pay tax on it to the government every year.

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Conclusion

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