Systematic Investment Plan: The simplest way to grow your wealth (Part 1)
Learn how a Systematic Investment Plan (SIP) can help you achieve financial goals, even if you're a beginner.
In this article, we will discuss everything you need to know about SIPs, including how they work, and their advantages.
Introduction
Investing in mutual funds can be a great way to grow your wealth over time. However, it can be daunting for beginners to know where to start. That's where Systematic Investment Plans (SIPs) come in.
SIPs are a great way for beginners to invest in mutual funds because they are simple, affordable, and disciplined. With a SIP, you invest a fixed amount of money in a mutual fund scheme at regular intervals, such as monthly or quarterly. This helps you to average your purchase price over time and reduce the risk of market volatility.
How SIPs work
SIP is a simple investment plan that allows you to invest a fixed amount of money in a mutual fund scheme at regular intervals. The frequency of your investments can be monthly, quarterly, or even annually.
For example, if you invest Rs 5,000 every month in an SIP, you will invest Rs 60,000 in a year. The amount you invest will be automatically deducted from your bank account on the specified date.
When you invest in a SIP, you are essentially buying units of the mutual fund scheme. The number of units you buy will depend on the current price of the units.
For example, if the current price of a unit is Rs 100, and you invest Rs 5,000, you will buy 50 units of the scheme.
Advantages of SIPs
There are many advantages to investing in SIPs. Some of the key advantages include:
Dollar-cost averaging: This is a technique that helps you to average your purchase price over time. When you invest a fixed amount of money in a mutual fund every month, you are essentially buying more units when the price is low and fewer units when the price is high. This helps to reduce the impact of market volatility on your investment.
Forced savings: SIPs can help you to save money regularly. By setting up an SIP, you are automatically investing a fixed amount of money from your bank account every month. This can help you to build your wealth over time, even if you can only afford to invest a small amount each month.
Flexibility: SIPs offer a lot of flexibility. You can choose the amount you want to invest, the frequency of your investments, and the type of mutual fund you want to invest in. You can also change or stop your SIP at any time.
Low investment amount: You can start investing in a SIP with as little as Rs 500 per month. This makes it a great option for beginners who don't have a lot of money to invest.
Tax benefits: SIPs offer certain tax benefits under Section 80C of the Income Tax Act. This means that you can claim a deduction of up to Rs 1.5 lakh for your SIP investments in your income tax return.
This is the first part of our SIP series. Part 2 on the topic will be published soon.