What are SIP and How does it work?

When it comes to investing, we complicate the process unnecessarily by thinking about it too much – like, when to start? Where to invest? How much to invest? What if the investment gets stuck?

Now, if you know Systematic Investment Plans, better known as SIPs, then you already have the answers to these questions. And if you haven’t heard of this great investment tool, then SIP is the answer.

What is SIP is a very common question asked by new investors in mutual funds. The question of what is a SIP or what is a Systematic Investment Plan can be answered very differently by different people. But simply put, if you dream of becoming rich and want to work towards that, then mutual fund SIPs can help you achieve it.

SIP Full Form

Full Form of SIP – Systematic Investment Plans

SIP Full Form in Hindi

SIP Ka Full Form: The full form of SIP is – Systematic Investment Plans (Systematic Investment Plan)

What is SIP in Hindi?

There is a popular saying – Drop by drop fills a bucket.

SIP also works on the same principal. It allows you to invest a fixed amount, which can be as small as Rs 500, at regular intervals in a mutual fund. In fact, you can decide on how much you want to invest regularly – it could be weekly, monthly, quarterly or even yearly. And over time, you will be able to create a huge amount of wealth.

Let’s look at this with an example that involves taking out a loan. We apply for a loan when we are planning to buy a house/car, finance a wedding or travel etc. It is also easy. The main reason for this is that we are unable to save a lump sum amount to make these purchases/payments. 

But when we take a loan to make these purchases, we can easily repay it in the form of monthly EMI, which is a very small amount. But, along with the principal amount, we also have to pay the interest amount for the loan. Hence, the main difference between a loan and a SIP is that in order to take the loan, you have to pay the interest amount; Meanwhile, for investing in SIP, you can save huge amount to generate high returns.

What is SIP Meaning in Hindi?

Meaning of SIP in Hindi | What does SIP mean?

The number of schemes available in the market for investment is beyond comparison. However, every person has different financial goals. For example, many individuals turn to investments when they learn that their annual income will be taxed. So to reduce their gross taxable income, such people look for investment plans. 

Few investors who have knowledge and understanding of the fact that investments are essential for financial growth, invest to build retirement funds. Others want to secure the future of their children and hence look forward to invest.

The first step of financial planning is to determine your short-term and long-term financial goals.

When you have a set set of realistic goals as per your financial needs, it can be very easy to search for an investment plan that aligns with that goal. So while choosing an investment plan, one should focus on their financial needs rather than investing in the schemes chosen by their friends or peers.

Your financial goals may or may not align with those of your spouse, your siblings, your parents or your partners.

The number of schemes available in the market for investment is beyond comparison. Many people aspire to be financially independent, but they don’t realize that they need to start with financial planning first.

The real problem is with those individuals who are not able to save any money from their monthly income. This problem is ubiquitous among the earning youth. They save less and spend more, leaving them bankrupt at the end of each month. Because of this they are neither able to save nor invest.

In fact, most of these individuals turn to credit cards, increasing their debt, reducing their savings or investment potential. Such persons should understand that money management is essential. They are living separately from their parents and spending their money for luxuries, but they must understand the fact that because their parents saved and invested, they are able to live a luxurious life.

As hard working individuals, we like to be appreciated and rewarded with encouragement. What if you have a way to increase your chances of rewarding yourself by making smart investments? Once you are good at money management and know what you want to achieve, the next thing to do is to determine your risk appetite. Risk appetite is nothing but the ability of an investor to take a certain amount of risk with their investments so that they can get some capital appreciation in the long run through those investments.

Each investment plan has a different risk profile and hence, it is essential for investors to know how much risk they are willing to take with their finances.

As an investor, if you are willing to invest in market linked schemes, your investment portfolio is also likely to suffer. This is the reason why individuals who are not risk-averse should try to invest in conservative schemes offering fixed interest rates. The only problem with such schemes is that the interest rates offered by them are generally lower than expected.

Therefore, the interest rate offered by such investment schemes may or may not be successful in helping an investor get closer to their short-term or long-term financial goals.

There are many factors that play a role in an investor’s risk appetite. For example, a young aggressive investor may have high risk appetite and may invest in equity oriented plans. On the other hand, someone who is nearing retirement may not want to invest his money in high risk schemes. However, these are just examples and may or may not be in that order in every situation.

To contradict the above example, someone who is nearing retirement but already has an established corpus still wants to invest his finances in a high-risk investment plan.

So readers should note that these are only assumptions and should not be treated as established claims. Several factors like age, income, current liabilities, monthly expenses etc. play an essential role in determining the risk appetite of an individual.

In recent times, mutual funds have become the choice of many Indian investors. Mutual funds offer investors the opportunity to invest in multiple asset classes through a single investment. They (mutual funds) are also considered to carry a diversified portfolio, thus balancing the risk in the long run.

If you want to know more about mutual funds, continue reading:

What is SIP and lumpsum investment?

People who want to invest in mutual funds usually have two mutual fund options – they can either invest in lump sum or start a mutual fund SIP. Let us understand each of them in detail.

1. Lump sum investment

Lump sum investment refers to the full payment of your mutual fund investments in one go. When you invest in a lump sum, you usually pay at the beginning of the investment cycle.

The advantage of investing in a mutual fund in lump sum is that the investors are allotted a large number of mutual fund units as per the current NAV of the fund. As the fund grows and continues to grow, the value of the units you receive may increase.

2. Mutual Fund SIP

Systematic Investment Plan (SIP) is a systematic approach towards mutual fund investment. The term SIP has become synonymous with mutual funds, which is why many people think that SIP and mutual fund are one and the same.

Actually SIP is a way of investing in mutual funds. With SIP, all you have to do is give instructions to your bank and on a certain date every month, a predetermined amount is debited from your savings account and transferred to your mutual fund.

SIP is an easy and hassle free method and you can invest in mutual funds without visiting the fund house personally. If you are a KYC compliant individual, you can also invest in mutual funds from your laptop or smartphone.

How does SIP work?

How does a SIP work in Hindi?

Through SIP, you can invest in any type of mutual fund, which helps you build wealth over a long period of time. Here, generating returns and generating wealth are not the same thing.

Investing in Fixed Deposits only helps you generate returns. But if you want to create wealth then you can invest in SIP mutual fund. And this amount is automatically deducted from your bank account at the interval at which you choose to invest.

Suppose, you have invested a certain amount in a monthly SIP and automate your deduction on the 5th of every month. So, this amount will be automatically deducted from your bank account on the 5th of every month for investing in the selected mutual funds.

What are the benefits of SIP?

Benefits of SIP in Hindi

Disciplined approach to investing

Investing through SIP brings discipline in your investment approach. Isolated investors often recommend that your day-to-day financial activities should be built around a simple formula “earning – saving = spending”.

Suppose you earn Rs X every month, and if you are unable to control your spending within a given budget, it may happen that you have nothing left to save at the end of the month.

But, if you invest in SIP, you will be forced to follow a disciplined investment regime. If you know what your expenses are, then you will inculcate the habit of spending within the budget. In that you will save first and then spend.

If you build your financial activities around it, i.e. save first and then spend, then you will never face any financial hardship as you are following a disciplined investing approach. Maintaining regularity in your investment approach helps you in achieving your financial goal or financial objectives.

1. Flexibility

Starting or closing a SIP is very easy and there is no penalty for interrupting it.

2. Wide Selection of Plans

You get a wide choice of Mutual Fund schemes and you can invest in any one matching your risk profile, investment objective or financial goals.

3. Convenience

You do not need to visit the AMC office every month or deposit the cheque. All you have to do is sign an auto debit / ECS form and the amount will be deducted from your bank account on one of the dates chosen by you. SIP can also be started online from the website of AMC.

4. Low Investment Amount

You can start a SIP in India with as little as Rs. 500 per month.

5. Diversified Investments

By starting a SIP in Equity Mutual Funds, you can take advantage of investing in different sectors and companies and thus spread your risk across companies, sectors and market capitalisation.

6. Power of Compounding

When you invest regularly through SIP and invest for a long period, the compounding effect increases the returns. Compound effect ensures that you not only earn profit on your principal amount (actual investment) but also return on principal amount i.e. your money grows over time as the money invested by you earns returns and also returns earn returns.

Mutual funds are often considered a long-term investment. Especially if you are investing in equity mutual funds, you are expected to stay invested for at least five to seven years. Also, if you continue to invest in mutual funds through SIPs in the long run, you can benefit from the power of compounding.

7. Helps you achieve your long term goals

SIP helps you to achieve your long term goals like retirement, higher education of children and their marriage etc. You can actually set a target amount for your goal and invest it over a fixed period of time every month to achieve it. For example – You are 30 years old and want to create a corpus of 5 crores for your retirement at the age of 55 years. You need to invest only Rs 27,000 per month for the next 25 years (assuming a return of 12%).

Suppose, you have invested Rs 1 lakh in mutual funds in a year. Its one year return is 15%. So by the end of the year this amount will become 1 lakh 15 thousand rupees. What is the power of compounding, in the next year (if the rate of return is assumed to be 15 percent) then it will give a return of Rs 1 lakh 15 thousand instead of your original investment of Rs 1 lakh. So, in this way, in the second year, you will get the return on the money invested by you and also the profit from the previous year. By the end of the second year, this amount will be Rs. 1 lakh 32 thousand.

Compounding power helps money grow faster

First Year
money invested 100000
The rate of return 0.15
Funds built up to the end of the year 115000
year two
Corpus built in a year 100000
The rate of return 0.15
Corpus built up by the end of the second year 132000

8. SIP Investing Can Help You Beat Inflation

It is true that mutual fund investing can help you achieve both short term and long term goals. However, many financial experts advise investors to go for long-term investments while investing in equity funds such as mutual funds. This is because when you continue to invest even in volatile market conditions, your investments can become stronger in the long run and not only help you beat market volatility but also offset inflation. can help you.

9. SIP Investments Can Help You Benefit From Rupee Cost Averaging

When you start a mutual fund SIP, you usually invest a fixed amount at regular intervals. So, when the market is low and the NAV of the mutual fund is low, you are allotted more units.

What are the types of SIP?

Types of SIP in Hindi

The above investment approach for mutual funds was done through traditional SIP. Apart from this, there are a few other SIP investment options currently available in the market that mutual fund investors can consider investing in to increase their chances of making wealth. They are mentioned below:

  1. Top up SIP – If the mutual fund you have invested in is performing well and you want to increase the amount you pay at regular intervals, some funds have an option to top up your initial SIP amount . This type of SIP investment where you can gradually increase your monthly SIP amount is called top up SIP.
  2. Perpetual SIP – Permanent SIPs do not come with an expiry date. Investors can continue investing in mutual funds through Perpetual SIP till they achieve their financial goals. Perpetual SIP does not have a renewal policy and you can continue investing for as long as you want. A permanent SIP generally targets the long-term financial goal of a mutual fund investor.
  3. Trigger SIP – A trigger SIP is generally considered by experienced investors who have a sound understanding about mutual fund investments and market volatility. New investors who are still learning or gullible in a deep understanding of how mutual funds work should avoid this type of SIP investment.
  4. Flexible SIP – There are many of us out there who have to deal with irregular cash flow. A flexible SIP helps such investors by giving them the freedom to increase or decrease the monthly investment amount depending on their financial position.

These were some of the ways in which you can continue investing in mutual funds. However, whether you want to invest a lump sum or start a mutual fund SIP, it can completely depend on your investment objective and your financial goal.

For example, if you are making last-minute investments in a tax saving scheme like Axis’ ELSS Fund, you may need to make a lump sum investment to reduce your tax liability. However, if you want to invest small amounts at regular intervals and gradually increase these amounts based on the performance of the mutual fund scheme, you can opt for SIP instead.

No matter how you decide to invest, it is better to ensure that the investment objective of the scheme you are investing in aligns with yours. Also, investors are advised to do some preliminary research about the fund before investing. Check whether the fund has consistently performed well in the past. Also, check the fund’s expense ratio, fund size, risk profile, investment strategy, etc.

Lastly, if you are someone who is new to investing or does not understand the working of mutual funds, it is better to take some professional help before investing.

Mutual fund investments are subject to market risk, read all the documents related to the scheme carefully, less number of units are allotted to you. This is called rupee-cost averaging.

How to start SIP investment?

1) Complete your KYC

Every fund house requires investors to complete the KYC document process before they can start investing. You have to submit your identity proof, address proof and photograph. These days, the e-KYC option is also accepted. You can complete the formalities online without visiting AMC.

2) Set your investment goals

The first step is to understand what you want to achieve through SIP investment. List your financial goals. This is necessary because every mutual fund has been created with a specific objective. Identify your goals and look for funds that can help you achieve these goals.

3) Choose SIP

Once you have selected a particular fund, choose the SIP parameter. Fill the details for such questions:

  • investment period
  • Frequency of investment (monthly, quarterly, half-yearly etc.)
  • investment amount
  • Enter relevant information based on your goals and financial situation.

SIP vs Lumpsum: Where to Invest?

There are two ways to invest in mutual funds: a SIP and a lump sum. In lump sum investment, you invest a large amount of money in a mutual fund in one go.

So, which is the better option: SIP or lump sum? Here are specific parameters that can help you make a decision.

  • Amount of money – If you have limited amount to invest then SIP is considered to be a better way to invest. It doesn’t matter that you have only Rs.500. or Rs.1,000 To invest every month. You can start your investment journey from Rs.500/-.
  • Experience – In lump sum investment, you invest the entire amount in one go. This means that you should invest at the right time to maximize your returns. If the market performs well then you can get good yields. But the downside is that you could incur a significant loss if the market suddenly moves downward. This can be a suitable strategy for experienced investors with large sums of money. But if you are a new investor, then investing in SIP can avoid unnecessary risk.
  • Investment discipline – In the long term, SIP investing helps investors to take better care of their finances. When you invest a fixed amount every month, you can manage your money in such a way that your investment can be met. Your progress may appear slow, but when you look back after a while; You must have invested a considerable amount. SIP mode can help you earn a huge corpus slowly and steadily.

This type of investment discipline does not hold for lump sum investments as most investors may not have a large amount to invest consistently.

Hence, depending on your investment amount, risk appetite and experience, you can choose between SIP and lump sum investment. But overall, experts generally recommend investors to invest through SIP instead of lump sum.

How to Customize SIP?

How to Customize SIP in Hindi

Many investors (especially those with jobs) prefer the monthly format of SIP investment. This is because they can transfer the SIP amount directly to the fund when they get their monthly salary. However, there are many other options that you can follow.

  1. Frequency of SIP – Mutual fund houses allow investors to invest in weekly, fortnightly, quarterly or half-yearly SIPs. And if you want to invest for the future without fixing the deadline, you can do that too. This is possible through the ‘Perpetual SIP’ option.
  2. Perpetual SIP – Under this option, you can regularly transfer a fixed amount into mutual funds for as long as you want. Give a standing instruction to your bank account and the money is directly transferred on a specific date. This can be a good option if you have a significant financial goal in the distant future (retirement, your child’s wedding expenses) and want to build a large corpus.
  3. Step-up SIP –  The step-up SIP option allows you to ‘step-up’ or increase your SIP investment from time to time. Imagine you start a SIP with Rs 1,000 per month. You can instruct the SIP to increase by a certain amount or a certain percentage. So, if you pay Rs. 1,000 every year, you have to invest Rs. 1,000 per month in the first year; Rupee. 2,000 per month in the second year and so on.

Scaling up your investments in this way offers two benefits:

  • You can earn a huge corpus during the investment period.
  • You can reach your goals faster.

Choose the step-up frequency and amount based on your investment goals and budget. You can use an online step-up calculator to get a clear idea of ​​how your investments can grow over the years.

Frequently Asked Questions on SIP

1) Why should I choose a Systematic Investment Plan?

A SIP is a simple and cost-effective way to invest your money in mutual funds. If you want to reduce your risk and want to invest a fixed amount in mutual funds regularly then this can be a good option.

2) Which is the best time to invest in SIP?

There is no ‘good’ or ‘best’ time to invest through SIP. The best part about SIP investing is that you don’t need to time the market or wait for the right opportunity to invest. Once you have selected a particular fund to invest in, you can choose any date of the month and invest regularly. Automate your investments to make the whole process easy.

3) Is SIP a good investment option for long-term assets?

Investing through SIP for long term can be an easy way towards wealth creation. This is because compounding comes in handy. The return you can earn on your investment increases over time. And the longer you invest, the more profit you can earn.

4) How much should I invest in mutual funds through SIP?

Most of the fund houses allow investors to start investing in SIPs with just Rs 500. As far as the upper limit is concerned, there is none – you can invest any amount.

5) Can I miss the SIP payment?

Yes. You may miss your SIP payment. And even if you do this, your account will not be deactivated. Fund houses also give you the option to stop your payments for a specific period. This is a useful feature that you can use in case you are unable to make your monthly SIP payments.

6) Are there any tax benefits on all investments made through SIP?

No, you can avail tax benefits only on SIP investments in Equity Linked Savings Schemes (ELSS). Every year, you can get a tax deduction of Rs. 1.5 lakh on ELSS investment under section 80C of the Income Tax Act.

7) Is SIP secure?

SIP is only one way of investment. It is not an investment in itself. For example, you can invest in equity funds, debt funds and hybrid funds through SIP. Hence, the risk appetite depends on the type of investment you choose.

8) How do I start my SIP investment?

You can start SIP investment by selecting the fund in which you want to invest. But before that, complete the necessary formalities and submit your KYC details to the Asset Management Company (AMC).

9) How to reduce the tenure of SIP?

Contact the fund house through written application or online request for reduction of your SIP tenure. However, you will have to meet a minimum investment period for this request to be considered.

10) How can I extend my SIP tenure?

When you complete your SIP tenure, you have the option to renew your investment. To extend your SIP tenure, fill up the appropriate form and specify the tenure you want to invest.

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