The biggest hiccup in investing is not where to invest. Instead, it is when to invest and how to keep investing even during the volatile market conditions. With the arrival of digital technology, the people have become more aware of the equity instruments, mutual funds, P2P financing, and the returns that they offer.
But the problem is people invest in such instruments sporadically and then stop investing when the market falls. Though this is a natural phenomenon, but there is a solution to it. SIP or Systematic Investment Plan- this instrument solves the problem of the best possible return that the investor can get on his money.
What is SIP?
SIP is not a mutual fund; instead, it is a schedule or period that lets you to invest a fixed sum regularly, generally after a frequency of a month. Since the investor has to invest regularly despite the poor market conditions, he can automatically purchase more units when the markets are at a low point. This results in lower average price and higher returns.
Let’s take an example
Suppose, an investor is investing Rs 20,000 every month in a SIP, when the NAV is 20, he will get 1000 units. However, if the NAV diminishes to Rs 10, he will get 2000 units, isn’t a simple arithmetic. In this way, the investor automatically buys the units when the market is in a bearish phase.
How to calculate the SIP?
An SIP calculator is provided by most of the fund companies online. It can help the investors to calculate the returns easily. This calculator can provide you the actual cost of the investment. All you need to do is to enter is the investment details along with the time horizon.
The best SIP funds available
It depends upon the purpose or the investment goal and the tenure. For example, if you want to invest in the child’s education the fund like Franklin India High Growth Companies is a good option.
Apart from that, the best large- cap schemes that the investors can invest in is SBI Bluechip Fund, Reliance Large Cap Fund, Aditya Birla Frontline Equity Fund, for mid- cap schemes the best operating funds are L&T, Edelweiss, Kotak Emerging, HDFC Mid Cap, Sundaram Mid Cap, UTI, and for the best tax saving mutual fund schemes are Aditya Birla SL Tax Relief Fund, Aditya Birla Tax Plan, Invesgo India Tax Fund, Reliance tax saver.
What points to consider before investing?
1 – Don’t rely on past performance
The past performance can be an indicator, but it doesn’t guarantee you the future performance. However, it only gives the investor an idea about the long-term value of the scheme.
2 – Factor in the wealth that you want to generate
Before investing in the SIP, it is important to consider the wealth that you wish to generate depending upon your risk appetite. It is believed the investment tenure for 5-6 years is ideal for investing in SIP funds. The important thing is to keep growing the amount of SIP every year as the income grows.
Before investing in SIP take into account the crucial details like goals, investment horizon and risk profile.
SIP is a favourable instrument because it teaches the financial discipline to the modern age investor. Hope this post gave a succinct explanation of what an SIP is and how it helps in your wealth creation objective.