SIP allows an investor to put the money at different levels of the market cycle and helps in long-term wealth creation.
Systematic Investment Plan or SIP is a method of investing in mutual funds. It allows investors to park money in small amounts and at regular intervals. Through SIP, investors inculcate a habit of regular saving and investing and hence build a financial discipline in life, experts say.
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There are several SIPs available in the market that can be chosen as per the financial goal and risk appetite of the investor. It can be started with an amount as low as Rs 500.
Key things to know about investing in mutual funds via SIP:
SIP allows an investor to put the money at different levels of the market cycle and helps in long-term wealth creation. Depending on the time frame selected by the investor, the money is deducted from the designated savings account of the investor at regular intervals.
According to Akhil Chaturvedi, executive vice president, head sales & distribution, Motilal Oswal Asset Management Ltd, SIP is a good way of accumulating mutual fund units on a periodic basis and over market cycles to create wealth in long term.
"SIP way of investing benefits from ‘Rupee-Cost Averaging’ which means buying more units when markets are down and lesser units when markets are up - thereby eliminating the challenge of ‘timing’ the market," he said.
According to Archit Gupta, founder and CEO, ClearTax, if an investor parks a big amount in the markets directly, there is always the risk of losing out a major portion of the investment in case of a crash. However, with SIPs, the money is spread over time and only some parts of the entire investment is likely to face the market volatility.
How much money should you invest
"Ideally 30 -35 percent of net take-home salary or net monthly income should be invested monthly through SIP route. But to begin with, even 10-15 percent should be good which should gradually be increased with time as income levels increase," suggested Chaturvedi.
How to select the right SIP
Choosing the right SIP starts with defining the goals. The goal can be short term, medium-term or long term. The investor needs to understand how much amount he/she can set aside for SIP every month and up to what tenor he/she can save. For short term - one can start debt/liquid funds SIP, for medium-term - multicap funds SIP and for long term-large cap equity mutual funds SIPs, according to experts.
First Published: Jan 14, 2020 5:25 PM IST
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