Why Should Investors Start an SIP Account?

Systematic Investment Plan or SIP account means a method of investing money in mutual funds.

In an SIP, one invests a fixed amount of money in a mutual fund every month. which is automatically deducted from one’s bank account. To know what amount of monthly SIP you need to invest to achieve a certain monetary goal, one can use an SIP account calculator. A Systematic Investment Plan (SIP) calculator is an online financial mechanism that helps one calculate the potential returns a person can earn on your SIP investments. The online SIP calculator tells how much money should be invested every month to for a target corpus.

A systematic investment plan (SIP) means a plan where investors set aside regular, equal payments into a mutual fund.

To open an SIP account, the investor should hold an investment account with the fund house. She/he needs to complete KYC verification before operating the SIP account. Once the investor has completed the KYC verification, she/he can open her/his SIP account within the investment account by filling up the ‘Start/Initiate an SIP’ form.

Why should investors open an SIP Account?

No need to track the market New investors are generally unsure of the market. In case of lumpsum investments one loses a large amount if the market crashes. Conversely, one stands to gain if the market rises. With an SIP, the amount is staggered over a period of time, and only a certain portion of the investment will face market instability. However, one should note that investing in SIP are subject to market risk and do not assure a profit or returns or protection against a loss in a downturn market.
Adjust SIP amounts
SIPs are flexible. For instance, if you start a Rs. 500 SIP in a mutual fund scheme it is not necessary to invest the same amount every month. If one’s savings increase in the future, you can increase the SIP amount or even start a new SIP in the same mutual fund scheme or any other scheme. You can miss paying the SIP for a few months or even stop the investment as per your choice.

Rupee cost averaging
When the market falls, the investor can buy more units. Similarly, investor will buy fewer units when the stock markets rise. This reduces the per-unit cost of purchasing the units. This is called rupee cost averaging.

Habit of investing
If an investor decides to invest through an SIP, this entails putting aside a fixed amount periodically. This inculcates financial discipline.

Suitable for new investors
An investor, who has just started her /his career, can use an SIP account to enter the world of investing. This way, she/he understands equities with a nominal amount. Later, one can invest in riskier equity schemes according to one’s investment needs and risk appetite.

An active SIP account inculcates a sense of financial discipline over time as you are forced to invest a fixed sum at regular intervals.