Systematic Investment Plan (SIP) is a method of disciplined investment in market linked funds offered by fund houses (Mutual Funds), Insurance companies (ULIP) and financial institutions. Best SIP plans offered by these fund management institutions, have given very high returns to disciplined investors even during volatile market scenarios.
SIP Plans to Invest in 2023
There is wide range of systematic investment options available today. Let's take a look at few top-performing funds, which are apt for SIP investment in the year 2023.
- Super Select Equity Fund TATA AIA
- Pure Equity BIRLA SUN LIFE
- Pure Stock Fund BAJAJ ALLIANZ
- Large Cap Equity Fund TATA AIA
- Equity Growth Fund II BAJAJ ALLIANZ
What Is SIP - Systematic Investment Plan?
Systematic Investment Plan is commonly known as a SIP. In India, SIP investment plans allow you to invest a fixed amount periodically in your favourite mutual fund schemes, and regular-premium ULIP Plans to grow your SIP premium through compounding interest.
So here's "What is SIP?" in a nutshell: It is a smart, or rather hassle-free, mode of investing money in the following investment options:
Mutual Funds: Here, you are allowed to contribute a pre-determined sum of money on a weekly, monthly, or quarterly basis.
ULIP Plans: Here, you can avail of all the plan benefits with regular payment of policy premiums in the frequency of Monthly/ Quarterly/ Half-yearly/ Annually.
Important Features of SIP Mutual Funds and SIP ULIP Plans:
SIP mutual funds are flexible in nature, thus, investors can choose to decrease or increase the amount of investment or stop investing in the plan whenever they want.
SIP ULIP plans allow investors to benefit from Top-up premium payments in case of availability of additional money with you for investment and gain higher maturity returns.
SIP Mutual Funds and SIP ULIP plans are pocket-friendly investments to build significant wealth in the long term.
SIP is the safest and best choice of investment for beginners and for those who are not well versed in the mechanism of the financial market.
How Does SIP (Systematic Investment Plan) Work?
Investing in SIP Mutual Fund and SIP ULIP plan is very simple and hassle-free. When you apply for one or best SIP plans, your money is automatically debited from your bank account on a stipulated interval and invested in mutual funds or the ULIP plan you purchased.
Based on the NAV (Net Asset Value) of your funds, you are allocated a certain number of units at the end of the day.
Every time you invest, you choose to invest in the best SIP plan in India, and additional units are added to your account based on the current market rate.
Investors don't require being an expert in the market timing to invest in the Stock Market.
Units are purchased at different rates. When the prices are high, the investors buy more units, but when the prices are low, investors buy fewer units.
Two methods that greatly benefit the SIP investors under even the best SIP plans are – Rupee-Cost Averaging and the Power of Compounding.
Rupee-Cost Averaging
The Stock markets in India are unpredictable. Hence, it is often difficult to understand what the best time to invest is and what is not. Rupee-cost averaging helps investors get rid of this problem. It allows your invested money to earn fewer units when the price is high and more units when the price is low.
Let us understand rupee-cost averaging with an example of SIP Mutual Fund investment:
Let us assume you invest Rs.500 each month between November 6, 2018, and November 5, 2019.
Now, check out the average cost per unit for investment. You will notice that it is lower than the average NAV of your investment over a period of 1 year.
Rupee-Cost Averaging Illustration:
Average cost = Total Amount/Total Units= Rs.6000/21.64= Rs. 277.27Average Price = Sum of all NAVs/Investment Span= Rs.6757.8/12= Rs. 563.15As you can see, the average cost is less than the average unit price. This is how rupee-cost averaging helps you generate greater returns by buying the units at lower costs.
Please note:Aforementioned table and values are only provided for illustration purposes and should not be correlated with the performance of any SIP mutual fund scheme.
Power of Compounding
Whatever amount you invest in SIP Mutual Funds and SIP ULIP plans, you earn interest on it. Such interests get compounded and accumulated over a period of time. The longer the tenure is, the higher the fund value will be. Therefore, if you stay invested for longer, you can accumulate more wealth with the power of compounding. Hence, if you start investing early in your life, you will create more wealth than the one who comes in later.
Let's understand the power of compounding using the table below. This table will help you understand how the power of compounding helps you maximize your returns over a longer period.
Benefits of Investing in SIP
SIP investment plan offers various benefits to investors. With a systematic investment plan, an individual can reap big returns by investing a small amount regularly. The following are the benefits of investing in SIP.
Convenience:
By using SIP, one can invest in a disciplined and phased manner. These are one of the most convenient and hassle-free modes of investment. The investors can start making the mutual funds investment through SIP with a minimum amount of Rs.500 and Rs. 1000 in the case of ULIP plans. Moreover, the investors can also authorize a mandate from the bank to pay for the SIP investment every month automatically.
Rupee-Cost Averaging:
The investors do not need to time the market, as they can buy more units when the markets are performing low and can buy fewer units when the market is performing high. This reduces the overall investment cost.
Power of Compounding:
One of the best ways to accumulate wealth is to invest regularly. A small amount invested regularly can ultimately double over a long-term period. The benefit of compound interest ensures profitable long-term returns as compared to the one-time investment.
2x Higher Returns than RD:
SIP Investment Plan offers double higher returns than conventional Fixed Deposits (FDs) and Recurring Deposits (RDs). SIP Plan helps to beat inflation in a much more efficient manner. SIP ULIP investments and mutual fund plans help to deal with market fluctuation and provide returns irrespective of the market performance of the funds.
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