SIP - What is SIP? - How does it work? Advantages & Disadvantages

Do you know what is SIP? or systematic investment plan is? You must have heard from several people chatting about SIP. You must have viewed many articles related to SIP on your mobile. But you do not know what is SIP, then through this article of ours, we will introduce you to all the knowledge narrated to SIP i.e. Systematic Investment Plan. What is SIP and How does it work? Information etc. will be provided to you through this article.

There are many methods to save, but along with saving, increasing the amount saved is the only method to save in the real sense. We can invest or invest the saved amount in many places and make a good profit. But if we want to get fixed and balanced money, then we should invest the saved amount in SIP.

By creating SIP, not only are we growing our savings, but through this, we also get tax exceptions. Initially, people had trouble with SIP and they considered it bad, so today’s article will try to break that confusion of those people and all necessary knowledge linked to SIP and it will be shared with you. what is SIP? let’s get it.

What is SIP?

You must have viewed many articles related to SIP on your mobile. But you do not know what is SIP. We have heard many times that the sea is formed by small droplets and this is also 100% correct. The same applies in the state of investments as well. It is not at all essential that we always have to make huge investments to receive a great amount.

By doing this, there can be an undesirable burden on the financial requirement of the person because, in the method of making huge investments, he will keep his financial condition in danger. Therefore, even if small investments are made daily, a huge corpus can be created in the long run, that too without any jeopardy. SIP also works in the same system.

SIP is a very simple process to invest in with a low loss. In which you can save for a great goal by investing a fixed amount every period/interval, after that with that little investment amount, you can get a large amount in the lengthy run.

Through SIP, the investor has to invest a set amount in the stock market, mutual fund, or gold, etc. for a specified period, those people who do not have much experience in the stock market and are unaware of the way the market acts. Investing through SIP is a very good solution. A fixed amount is invested in SIP at stipulated time intervals. The investor can invest in the stock market, mutual fund, and gold ETF in SIP.

SIP has brought mutual funds within the range of the middle-class man as it makes them capable to invest even those people whose budget is very smaller. Those who are powerless to make significant investments in one go but they can invest 500 or 1000 ₹ every month. can. So through SIP, he has come within the reach of such people. Middle-class people can gain huge profits by making small investments for a great time.

In SIP, you invest a certain amount every month and buy units by investing in a firm fund, for example, the SHIV of a company’s fund is 10 ₹, then by investing 1000 ₹, you get 100 units of that company in return. Will take And whenever you want to exit, you can get profit by selling those units you have purchased at the market price controlling at that time.

what are the advantages of SIP?

we have known now what is SIP? now let see the benefits there are many benefits of SIP such as tax exemption, ease of investment, etc. But there are some other advantages as well, let us know what are the benefits of SIP:-

1) Small investment – As we acknowledge that only a fixed amount has to be invested monthly, so it is very simple to get the amount for investment from your routine and expenses.

You can get a huge amount by investing a small amount at fixed intervals continuously for a long time

If you invest 1000 ₹ every month at the rate of 10 percent interest return, then in 15 years you will get around 414,470 ₹ at the end of the tenure of your investment. Whereas you must have deposited just Rs 1,80,000 in these 15 years.

You can begin investing in SIP from Rs 500. Which can give you great profits in the lengthy run.

2) Ease of investing – Investing in SIP is very comfortable. There is no need to bother much about this, just once you have selected your plan, the mutual fund removes the amount from your account and deposits it in your picked plan on the specified date.

Your bank account is associated with your SIP system account. Like if your plan is to invest 1000 ₹ every month, then every month 1000 ₹ is shifted from your bank account to the SIP account. That sent money is used to buy units which will help you in the future.

3) Risk Reduction – The greatest and the main benefit of SIP is that the risk is very less in it. Suppose you have fifty thousand rupees to invest in the stock market. You put that cash together in the stock. Now you do not know whether the market will go up or below the next day.

This would be a very dangerous deal. If the same investment is divided into little intervals, then the risk is reduced. We can save ourselves from the loss of the stock market by depositing this Rs 50,000 in 10 installments of Rs 5000 each. Similarly, SIP saves us from the disadvantages of the stock market by investing a small amount because of not investing a large amount at once.

4) Tax exemption – When you invest in SIP, you do not receive any tax on the amount invested or withdrawn. But the plans giving tax freedom have a lock-in period such as 3 years. You can get tax exemption by investing in those.

5) Systematic and Disciplined Investment – To invest in SIP, a little amount (as per your plan) is invested daily by withdrawing it from your account. This keeps discipline and order in your investing method. This discipline helps you to save and teaches the habit of maintenance.

6) Benefits of Compounding – The term compounding means getting interested in interest as well. Whenever an investment is done in SIP and whatever return is earned on that investment amount, it is re-invested again from a similar place, which increases the value of the investor and in his earnings. growth results.

The investor can decide to proceed or hold investing in SIP according to his need. With this, the investor not only gets good returns but also gets excellent liquidity at his service.

You can start investing in SIP now only at the rate of ₹ 500 per month. In this, you do not need to take Mutual Fund. Most of the things in this are automated. The advantages of SIP are very high and its disadvantages are not.

If you have little capital left from your daily life, then you should invest in SIP. Even though that money is still short, but after a few years pass and after investing regularly, that small amount will get you a huge corpus. Which you can use however you require.

what are the disadvantages of SIP?

Lack of funds: SIP has to be invested continuously by mandate or order of ECS.

Most SIPs are for long intervals. Sometimes there may be insufficient funds in the bank of the customer of SIP due to some reason and the ECS may bounce.

In such a situation, you may have to face a heavy penalty.

The problem in fund house: No one knows the future, there may be some problem in the management of your mutual fund house.

There may be fraud or some such thing that makes your money unsafe. Although all fund houses have to run as per IRDA (Income Tax Regulatory Authority) norms and the chances of all this happening are less but it cannot be said that it cannot happen.

The risk: Any investment or business brings with it some of the other risks. Mutual fund investments are no exception to this.

If someone tells 100% that there is no risk in it, then he is fooling you.

It may be that you have invested in mutual funds through SIP for 10 years and the NAV of your fund has increased significantly in the first 9 years.

But at the time of your exit, there was such turmoil in the market that the value of your mutual fund became less than your deposited capital.

How SIP works?

The theory of SIP is very related to that of a bank recurring deposit. When you start an SBI SIP, monthly, weekly, or daily investment money is automatically deducted from your bank account on the defined date. This pre-determined amount is invested in your Mutual Fund plan.

While it is necessary to note here that your own investment amount will not transfer, you have to keep in mind that the NAV/value of the fund collected by you will vary from today. Thus, the number of units purchased will also be changed each time.

For example, assume you invest Rs.500 every month in SIP and the first time you invest in SIP, the NAV/value of your chosen Mutual Fund scheme is Rs.50 and thus You buy 10 units of the plan. Next time your SIP amount happens, let’s say the NAV/value of that mutual fund unit has grown to Rs.60, in that case, you will be able to buy only 8.33 units.

I hope you guys must have known what is SIP. I request all of your browsers that you also share this knowledge with your neighbors, relatives, your friends so that there will be awareness with us and everyone will profit a lot from it.

I need your help so that I can pass on more new information to you guys.

But still, if you see any need in this post of our SIP, then please give your view in the comment box and help us to improve that deficiency, thanks.