![]() ![]() This is possible through the power of compounding.Ĭompounding is the process through which you earn interest on the principal amount as well as on the interest part. The earlier you start saving, the more time your money has to compound, and even if you start with a small amount, you can add up to large sums over time. In investing, the “Power of Starting Early” refers to the belief that if you start investing in an early stage of your life, then you can accumulate more wealth in the long term. The returns generated on your investments are reinvested, and over time, this compounding effect can significantly increase the value of your portfolio. SIP takes advantage of the power of compounding. This helps in building a habit of saving and investing consistently over time. Investors commit to investing a fixed amount at regular intervals (usually monthly). SIP encourages disciplined and regular investing. This expertise can potentially lead to better investment outcomes compared to individual stock picking. SIP investments are managed by experienced fund managers who make investment decisions based on extensive research and analysis. Here’s how rupee-cost averaging will work in your favor for this investment: 2. Over the long term, this reduces your average cost per allotted unit, potentially reducing the impact of market volatility on your investments.įor instance, say you’ve decided to invest ₹5,000 via SIP each month for the next 5 months. ![]() This means that when the markets, and consequently a mutual fund’s NAV, are low, you’re allotted more mutual fund units, on the other hand, you’re allotted fewer units when the markets are at a peak. SIP involves investing a fixed amount at regular intervals, regardless of market conditions. Following are some of the most prominent benefits of SIP plans: 1. SIPs offer a broad basket of benefits to investors across age groups and risk profiles. The number of units allotted for each contribution may differ because the NAV changes every day. The acknowledgment also includes the number of units you’ve been allotted based on the NAV (net asset value). The funds will keep debiting from your bank account based on the frequency you entered while setting up the SIP.Īfter the money is debited, you’ll soon receive acknowledgment about your funds being invested. ![]() It will be debited each month based on the date you selected while setting up the SIP. Once everything is set up, money will be debited from your registered bank account. Automatic debits and unit allotment based on NAV The process has been illustrated in detail in a later section. If you’re a first-time investor, complete your KYC and enter the bank details along with your SIP contributions and frequency, and you’re done. On ET Money, go to your chosen mutual fund, and click on invest. Setting up your SIP is a simple process once you’ve picked a mutual fund. However, if you have reasons to select a different frequency, you may choose to invest weekly, quarterly, semi-annually, or annually. The most common choice, especially among salaried investors, is a monthly frequency since they receive their salary monthly. ![]() The next step in your SIP investment journey is to choose an investment frequency you feel comfortable with. If you need some help with choosing a mutual scheme, take a read through our primer on how to choose a mutual fund. There are four stages to investing in SIP from the beginning to the point where your funds are invested in a mutual fund scheme: Select a mutual fund schemeĪs your first step in the SIP investment journey, you need to select a mutual fund scheme you want to invest in. How does SIP Work?īefore you set up your SIP, there are a few essentials you need to know about how SIP works. This approach is well-suited for individuals in India looking to achieve various financial goals, such as wealth creation, retirement planning, or funding education while providing flexibility to adapt to changing financial circumstances. SIPs offer a disciplined and convenient way for investors to build wealth gradually, benefit from rupee cost averaging, and harness the potential of compounding over the long term. SIP stands for “Systematic Investment Plan”, a method of investing in mutual fund schemes where an investor invests a fixed amount of money at regular intervals (typically monthly or quarterly) rather than making a one-time investment. In this blog, we will dive deeper to understand the meaning of SIP, how it works, and its benefits. By making small investments regularly, you can accumulate a bigger corpus in the long term, which will help you to fulfill your financial goals. Nowadays, SIP is counted among the best investment options for individual investors. ![]()
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