Systematic Investment Plan (SIP) is a disciplined investment approach in mutual funds. SIP is a popular investment strategy. It allows investors to invest a small amount of money regularly. This helps in building wealth over a long time. The key to successful investing is starting early, being consistent, and staying invested long-term.
This blog will explore some basic knowledge about how SIP works and its benefits. We will also take a look at some of the best short-term SIP plans and long-term SIP plans.
How does SIP work?
SIP works by investing a fixed amount of money at regular intervals in a mutual fund scheme. Investors can choose to invest weekly, monthly, quarterly, or yearly. Based on their investment goals and financial needs. SIP or a mutual fund SIP is an automated investment process. It ensures that money is invested consistently without any manual intervention.
When an investor signs up for a mutual fund SIP, the mutual fund company deducts the specified amount from the investor's bank account. Then it invests it in the chosen mutual fund scheme. The mutual fund scheme units are allocated based on the scheme's current net asset value (NAV). The NAV represents the value of the mutual fund scheme's underlying assets, such as stocks and bonds.
SIP is a flexible investment strategy that allows investors to increase, decrease, or stop their investments based on their financial needs. Investors can also switch between mutual fund schemes based on risk appetite and investment goals.
Short-term investment with SIP
Short-term investments refer to investments that have a duration of one to three years. SIP is an excellent investment strategy for short-term investors as it helps them achieve their financial goals systematically.
Short-term investors can choose mutual fund schemes that invest in debt instruments such as bonds and fixed-income securities. Debt mutual fund schemes provide steady returns and lower risks than equity mutual fund schemes.
Best short-term SIP investment plans
Here are some of the best short-term SIP plans for investors:
Axis Liquid Fund- This fund invests in high-quality debt instruments and provides investors with stable returns. The fund has a low expense ratio, making it an ideal choice for short-term investors.
ICICI Prudential Short-Term Fund- This fund invests in debt instruments that have a maturity of one to three years. The fund has a higher risk profile compared to Axis Liquid Fund but provides higher returns.
Aditya Birla Sun Life Short-Term Fund- This fund invests in debt instruments with a maturity of up to three years. The fund has a diversified portfolio, which helps in reducing risk.
Long-term investment with SIP
Long-term investments refer to investments with more than three years of duration. SIP is an excellent investment strategy as it helps build wealth over time.
Long-term investors can choose mutual fund schemes that invest in equities, such as stocks and shares. Equity mutual fund schemes provide higher returns compared to debt mutual fund schemes. But equity mutual funds have higher risks.
Long-term investors can invest in different equity mutual fund schemes based on risk appetite and investment goals. Investors can diversify their portfolios by investing in different mutual fund schemes across sectors and industries.
Benefits of SIP
- Disciplined approach to investing- SIP helps invest a fixed amount of money regularly, which helps build wealth over time.
- Reduces market risk- Since the investor buys units at different market levels, averaging the investment cost. This reduces the market risk at a significant level.
- Flexibility- SIP is a flexible investment strategy that allows investors to increase, decrease, or stop their investments based on their financial needs.
- Low cost- SIP has a low cost of investment, which makes it an ideal choice for small investors who want to invest without the hesitation of the costs.