What is An SIP [Systematic Investment Plan]. Investment Information.




SIP [Systematic Investment Plan].



If you are a general investor who wants to invest in mutual funds then you must have heard about SIP.


The investment of people in Mutual Funds in India has increased tremendously in the last few years.

Most of these people invest in Mutual Funds through SIP.

This year, July, last month, Mutual Funds invested Rs 8324 crore through SIP.

Which is more than 10% of the investment of 7554 crores in July last year?

That means more and more people are investing through SIP.

So what is this SIP? And what is it that people who are investing so much in this way?

This is what we will know today.

We will know what is SIP? How does SIP reduce the risk for an investor?

What are the advantages and disadvantages of SIP?

Should an ordinary investor invest in a mutual fund through SIP?

First of all, know that


What is SIP [Systematic Investment Plan]?

The full name of this SIP is the Systematic Investment Plan. SIP is also known as SIP.

As you can know by name, SIP is a systematic way to invest.

And it is mostly used to invest in Mutual Funds.

In this way, the investor keeps investing a certain amount in a fixed time interval rather than investing all the money simultaneously.

As an investor has started a SIP of Rs 1000 per month, he will continue to invest Rs 1000 per month in that mutual fund.

Investing in small amounts every month or every quarter does not increase the economic burden on the investor.


Therefore, even a low-income person can invest in it.

He makes this investment according to the NAV of Mutual Funds.

NAV stands for Net Asset Value.

That is, Mutual Funds cost 1 unit.

Just as we invest in the stock market according to 1 share, so is invested in mutual funds according to 1 unit.


Because of this, the investor buys mutual funds at different NAVs in different months.

When the market is booming, the mutual fund's NAV will be higher, so there will be fewer units at Rs 1000.

And when the market is downturned, NAV will come down so more units will come in at Rs 1000.

In this way, the investor will continue to invest Rs 1000 in all market conditions.

And by doing so, it will average (NAV) the average of the total units purchased.


It has been seen in the long run that, if invested in the right place and correctly, Mutual Funds give very good returns.

Therefore, you will get a good return on long-term investment.





How does SIP reduce the risk for an investor?


This can be understood from the example given below.


Reliance Small Cap Fund - Direct Plan (G):

Here I have listed the NAV chart and value of Reliance Small Cap Fund - Direct Plan (G) from May of 2018 to April of 2019.

In this example, we will look at the one-time investment and which of the investments made by SIP, the loss is greater.


Date

NAV

03-05-18      

48.2

03-06-18

44.61

03-07-18

43.35

03-08-18

45.25

03-09-18

46.83

03-10-18

40.95

03-11-18

41.73

03-12-18

41.82

03-01-19

41.79

03-02-19

39.85

03-03-19

41.04

03-04-19

42.73


First of all, we see how much return he would have got if an investor had made a one-time investment in May.

He would have invested at a NAV of 48.2 when he made a one-time investment 11 months ago.

Returns to it in the following way:
Returns = (42.73 - 48.2) / 48.2 = -11.34%
That means after investing 11 months, the investor would have lost 11.34% instead of profit.

Now let's see that if the investor invested through SIP instead of investing together, the average NAV of his investment would have been 43.22.

The return from which he will receive:
Returns = (42.73 - 43.22) / 43.22 = -1.13%
This means that even if invested through SIP, the investor would have a loss of 1.13%.

But this loss would have been much less than the loss of investing together.

In this way, investing through SIP instead of investing together will reduce the loss of investment.

So from this example, you may have understood how investing through SIP reduces risk.


Now we know, of



What are the advantages and disadvantages of a SIP?


There are also advantages and disadvantages of investing in SIP method:


Advantages:

One of the biggest benefits of investing through SIP is that the investment risk is reduced.

In this way, it is not necessary to extract the amount of investment simultaneously.

Investment can also be started with a small amount.

Investors learn how to invest in a systematic way.

Even people with low incomes can invest.

You can increase the amount of investment by using the Top-Up SIP feature.


Disadvantages:

Long-term SIP returns are lower than those obtained with long-term lump sum investments.

The bank should have enough money to invest every month.

The bank may charge a penalty if there is not enough money at the time of investment.

If you miss 3 consecutive instalments, your SIP is cancelled.

Should an ordinary investor invest in a mutual fund through SIP?


There are two answers to this question. If the investor can take as much risk as the one-time investment, then he can make a one-time investment.

But if the investor cannot take too much risk of one-time investment, then he should do SIP.

Tell us in the comments how you would like to invest.

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