Why Should Investors Start an SIP Account?

Systematic Investment Plan or SIP account means a method of investing money in mutual funds.

In an SIP, one invests a fixed amount of money in a mutual fund every month. which is automatically deducted from one’s bank account. To know what amount of monthly SIP you need to invest to achieve a certain monetary goal, one can use an SIP account calculator. A Systematic Investment Plan (SIP) calculator is an online financial mechanism that helps one calculate the potential returns a person can earn on your SIP investments. The online SIP calculator tells how much money should be invested every month to for a target corpus.

A systematic investment plan (SIP) means a plan where investors set aside regular, equal payments into a mutual fund.

To open an SIP account, the investor should hold an investment account with the fund house. She/he needs to complete KYC verification before operating the SIP account. Once the investor has completed the KYC verification, she/he can open her/his SIP account within the investment account by filling up the ‘Start/Initiate an SIP’ form.

Why should investors open an SIP Account? 

• No need to track the market New investors are generally unsure of the market. In case of lumpsum investments one loses a large amount if the market crashes. Conversely, one stands to gain if the market rises. With an SIP, the amount is staggered over a period of time, and only a certain portion of the investment will face market instability. However, one should note that investing in SIP are subject to market risk and do not assure a profit or returns or protection against a loss in a downturn market. 

• Adjust SIP amounts

SIPs are flexible. For instance, if you start a Rs. 500 SIP in a mutual fund scheme it is not necessary to invest the same amount every month. If one’s savings increase in the future, you can increase the SIP amount or even start a new SIP in the same mutual fund scheme or any other scheme. You can miss paying the SIP for a few months or even stop the investment as per your choice. 

• Rupee cost averaging

When the market falls, the investor can buy more units. Similarly, investor will buy fewer units when the stock markets rise. This reduces the per-unit cost of purchasing the units. This is called rupee cost averaging. 

• Habit of investing

If an investor decides to invest through an SIP, this entails putting aside a fixed amount periodically. This inculcates financial discipline. 

• Suitable for new investors

An investor, who has just started her /his career, can use an SIP account to enter the world of investing. This way, she/he understands equities with a nominal amount. Later, one can invest in riskier equity schemes according to one’s investment needs and risk appetite. 

An active SIP account inculcates a sense of financial discipline over time as you are forced to invest a fixed sum at regular intervals.

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Mutual Fund investments are subject to market risks, read all scheme related documents carefully.