What is sip investment?

     

SIP and lump sum are the two investment methods to invest in mutual funds:  

SIP  

Systematic Investment Plan, or SIP for short, is a well-liked mutual fund investment strategy. In this case, investors consistently contribute a set sum of money at predetermined periods, typically once a month. Over time, it enables investors to progressively expand their investment portfolio.  

Benefits of SIP  

Now let’s try to understand the benefits of a SIP.  

1. Rupee Cost Averaging:  SIP is based on the rupee cost-averaging concept. where the price at which you buy mutual fund units is averaged out. Put simply, you invest a certain sum of money on a regular basis. Low prices allow you to purchase more units. Thus, rupee cost-averaging gives you the freedom to make systematic mutual fund investments. Let's take an example to further understand what rupee cost averaging is. Suppose that your first investment was made in a mutual fund at the unit price, or NAV, of 100 rupees. What is your average investment if the price of the identical mutual fund unit drops to Rs. 80 the following month and you choose to invest the same sum then as well? In contrast to lump sum, where you must wait until the price reaches the 100 rupee mark, you will receive the advantage on the 90 rupees.  

2. Disciplined investing:  It's a human inclination for people to invest haphazardly rather than systematically. However, SIP investing teaches you to be a disciplined investor. because you must invest within the specified time frame.  

3. Flexibility:  Depending on their financial objectives and situation, investors can begin, halt, and alter their SIP investment. Consider Corona as an example. Let's say you are making 20,000 per month through SIP, and you were forced to reduce your pay due to Corona. You can't invest 20,000 a month now that your wage has been reduced. You can temporarily put your SIP on hold and pick it back up later.  

4. Compounding : A small amount of money saved consistently over an extended period of time can have a compounding effect that increases the value of your investment exponentially.  

This is demonstrated by the following examples: When he is 40 years old, "A" begins investing for his 60th birthday.  

His total capital at the end of 20 years will be Rs. 5,28,000. This is assuming a 7% return and a monthly investment of Rs. 1000.  

When he is 20 years old, "B" begins investing for his 60th birthday.  

If he invests Rs. 1000 a month and receives 7% returns, his entire corpus at the end of 40 years will be an astounding Rs. 26,56,436—nearly five times what A has accumulated.  

Higher returns and earnings are obtained from consistent investments made over longer periods of time.  

Lump Sum investing  

A lump sum investment is when a certain quantity of money is invested in a mutual fund all at once as opposed to progressively making smaller investments over time.  

Benefits of Lump Sum  

1. One-time contribution:  A lump sum investment entails purchasing a mutual fund all at once. Knowing that your money is working for you gives you peace of mind. It enables you to concentrate on other aspects of your life and lessen your financial stress.  

2. The chance for a large return:  Investing in a lump amount allows you to use your funds in the financial market right away. In contrast to rupee-cost averaging, your investment can yield substantial profits if the market does quite well.  

3. Reduced Transaction Costs:  Investing through Lumpsum will save you money on transactions when compared to gradually making several smaller investments. which can raise the total return on your investment.