Have you been investing all your funds in a lump sum investment at one go? If yes, then we will tell you a secret that most successful investors follow to build their wealth smartly.

The secret is called a Systematic Investment Plan or simply SIP.

What is a SIP?

A systematic investment plan is a smart way of investing, in which instead of investing all your fund at a time, you set aside a certain percentage of your portfolio each month (or quarter) to invest in different types of asset classes, depending on your risk tolerance and financial goals.

The funds are automatically invested in stocks or mutual funds selected by you. You can also invest in an index fund so that your portfolio at least matches the return of the market. This will decrease the risk and volatility and provide a higher return than if you were to invest on your own into individual stocks.

SIP has gained tremendous popularity over the last decade or so because it can be a quick and easy way to build a retirement fund and meet other investment goals that the investor has. They provide a long-term, diversified portfolio of investments that will grow over time.

Advantages of investing in a systematic investment plan

1. Systematic Investment Plans (SIP) enable you to invest in a variety of stocks, bonds, and other securities with a predetermined amount per month. The plans do not require you to actively trade and stay on top of the market.
2. SIPs do not involve any emotional trading and eliminate the need for constant monitoring of investments.
3. It allows for efficient diversification of portfolios to minimize the risk of losing money in any single investment.
4. SIPs provide peace of mind by automating your investments and providing you with a steady return in the long term.
5. SIPs are ideal for people who don’t have time to manage their investments or people who are not experienced in managing their finances. The automatic nature of these plans also makes them ideal for those who want to invest but do not have much experience with them.
6. SIPs provide Rupee-cost averaging benefits. When you do this, you will buy some units when prices are higher and some when prices are lower. This means that over time, your average cost per share will be lower than if you had invested a lumpsum amount once or twice.
7. Systematic investment plans can also help you reduce the volatility of your portfolio which can provide a higher return on investment.
8. In a SIP, the earnings from your portfolio are re-invested. This enables you to benefit from the compounding of money, and your portfolio grows faster.

The process of investing in a systematic investment plan in India

1.Decide your investment objective

It is important to know oneself when deciding what type of SIP to invest in. Investing in a SIP without understanding the risks and benefits could lead to a bad experience with investing. There is a wide variety of assets available for different needs and budgets, so understanding your personal needs and goals can help guide your future investments.

2.Assess your risk appetite

Another thing to do before investing through SIP is to assess your risk appetite. You should see if you are willing to take on the potential of loss to achieve higher returns. If you are risk-averse, then go for low-risk investment options like a balanced or debt fund.

You can consult an investment advisor to assess your risk appetite.

3.Decide how much you want to invest per month

The amount you invest through SIP every month will depend on how much you save every month. Please remember, that there is no right or wrong amount – even if you can manage to save very small amounts, it is worthwhile to start a SIP.

4.Decide the duration of your SIP

Another thing that you will have to decide is how long you want to invest. This is essential for setting up a SIP. You can set it as short or long term, depending on what you are looking at and whether you plan to withdraw from it in future. If you do not know when you would like to stop investing, then go with the longer period.

5.Assess your investment options

Investment in systematic investment allows investors to create a diversified portfolio and to maintain a fixed % allocation of their money in specific asset classes, such as stocks, bonds, and cash. The choice of which assets you will invest in depends on what type of investor you are.

You will also have to pick the specific stocks or mutual fund schemes where you will invest.

6.Start the SIP

Once you have decided on all these points, you will have to sign up with a stockbroker or mutual fund distributor through whom you will start the SIP. You can also directly sign-up with a mutual fund house (AMC) to start a mutual fund SIP.

You will have to do the following:

1. Open an account with the stockbroker/ Mutual fund Distributor/AMC
2. Fulfil the KYC (Know Your Customer) requirements by providing the necessary documents.

Setup up the SIP by setting up the auto-debit (payment method), specifying the SIP date, investment frequency, duration, investment amount and schemes/shares where the investment must be made.

This is a simple process and needs to be done only once while setting up each SIP. Once done, the investments will keep happening automatically for the entire duration of the SIP. You will only have to maintain the investment amount in your bank account so that the auto-debits can happen smoothly every time.

Start a SIP today and hold on to your portfolio for as long as you can, so that you can get the best returns from your investments and achieve your financial goals confidently.

Happy Investing!

This article is for education purpose only. Kindly consult with your financial advisor before doing any kind of investment.