Systematic investment planning or SIP is a method of investing in mutual funds; where as mutual fund is something that brings together money to invest in stocks, bonds or other different assets. Mutual fund or the SIP was started in India in the year 1993 by Franklin Templeton Mutual Fund. The SIP date will be 25 years back in July 2022.
There are certain pros and cons to the SIP investment:
1) Cost Averaging: Biggest benefit of doing SIP as when the market is down one can buy more units and when the market is up the value of investment goes up.
2) Can start with small amount: One does not need a lot of savings to start an SIP, it can be started with as low as rupees 500.
3) Flexibility: Due to low investment amount an investor can time the investment as per their income flow, also investment with small amount do not put a pressure on them.
1) Less control: SIP in a way is rigid because there is a fixed amount invested so if one wants to change the scheme or amount they must stop this and start a new one.
2) Limited options of SIP dates: In SIP in mutual fund you need to decide a date in advance when you will like to do your SIP. This problem really matters to someone whose cash flow doesn’t match to the SIP date.
3) Delay between actual application and start/stop of SIP: If someone misses one monthly installment, MF houses need at least a month to start a SIP and two weeks’ time to stop it.
Steps involved in the process of investing in a SIP:
1) Know the investment objective : It is important to know the objective of your investment to fetch an ideal portfolio mix of debt and equity.
2) Choose ones appropriate mutual fund: There are different types of mutual fund scheme, mutual fund selected should be aligned with financial goals, risk and investment horizon. Always keep the past performance in mind while selecting the mutual fund. Once finalized the company follow the further steps:
a) Online: For a new investor create a new account or login with your previous credentials . Carefully fill the KYC details and make the payment online.
b) Offline: Fill the application form and KYC form and submit to the nearest bank. Also provide identity proofs like address proof, utility bill etc.
3) Select the date of your SIP investment: The date can be selected as per ones convenience. Multiple dates can be selected for multiple investments in a month.
4) How long to invest and How much to invest in a SIP: Investing in SIP is one of the most appropriate ways to fulfill ones financial objectives. They can also consider using an SIP calculator to estimate the returns on your mutual fund investments. According to financial experts one must invest 10-20% of earning via SIP’s.
Return on investment:
Expected annual rate of return is 12%
Advantages of investing in SIP:
1) Compounding Return: This states the money you have invested get returns further the returns also generate return.
2) Rupee cost averaging: SIP has Rupee cost averaging to buy securities when markets are down and sell when markets are at a high.
Some tricks for investing in SIP to maximize ones return:
1) Begin early: There can be approximately a difference of 4-5 times if the difference in the investing time is 7-10 years. Early start to investment ensures that one generate adequate returns on their investment.
2) Boost your investment regularly: This is crucial because the return is directly linked to the investment. This is more important in SIP when the return are compounding.
3) Avoid early withdrawal: Once it’s chosen to take systematic withdrawals, ensure they are only withdrawing the returns part of the investment and the principal portion is intact so that it can keep generating returns in future.
4) Review the performance of funds: The main objective of the investor is to get maximum returns and thereby it’s important to keep a track how the funds are performing in the market. So, if a mutual fund is not performing well you can take out your fund from there and invest it in some other mutual fund.
IPO- IPO stands for initial public offering. It is when a private company becomes public by selling its shares in the stock exchange.
Working of an IPO- Before the IPO the company is privately owned either by the owner or the family members who have given or lend money to start up the business .
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