Are you a novice in the investment section? Do you know how sip works in mutual funds? If the answer is yes, then you do not have to worry. In this article, we will explain how a sipworks in mutual funds.
What is a SIP?
- A systematic Investment Plan (SIP) is a method to invest a fixed amount regularly, monthly, or quarterly in a mutual fund scheme.
- If you select a date, sip allows you to buy your selected scheme’s units.
- As an investor, you can invest a pre-determined fixed amount in a chosen scheme.
How will you start?
Before start investing in SIP, keep in mind a few points-
- Your financial goals should be attainable and specific.
- A timeline is a must if you decide to invest in SIP. It will keep you focused, and you can make a decision when you need the money.
- Using a SIP calculator, you can calculate how much you need to invest regularly to accomplish your financial goals.
- Lastly, consult with your financial advisor and make a plan that meets your requirements.
How does it work?
- You need to fill up an application form and SIP registration cum mandate form.
- You need to mention your choice of scheme name, amount, frequency. The SIP date needs to be mentioned as the amount will be deducted from your bank account.
- SIPs help you to invest a meager amount, like Rs500 per month over some time.
- You can average your cost of investing and the benefit of the power of compounding.
- The compounding rate will help you to invest over a long period. This will enable you to earn money over the years.
- In a mutual fund scheme, through the SIP method, you can invest a fixed sum regularly.
- It helps you buy units on a given date each month. This enables you to implement a saving plan for yourself.
Thus, it is clear how sip works in mutual funds.
Advantages of SIP
- As your earning grows with the time, you can increase the investment amount. Thus, it is a flexible and affordable option.
- If you see your investment is not working out, you can withdraw every single penny you have invested without penalty. So, you can get free of entry or exit charges.
- You do not have to worry about the ups and downs of the market. You can remain stress-free.
- You do not need to do the things on your own. The money market experts will do it for you.
Conclusion
SIP works on the same principle of the famous saying, ‘drop by drop fills the bucket’. By investing a small amount regularly in an interval, you can save a lot of money. Even if you are a first-time investor and do not want to take risks, SIP is the best option for you.
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