When it comes to investing in Systematic Investment Plan(SIP) you should be aware of the benefits. After you’ve understood Benefits, you’ll need to think about the drawbacks.
You can only select the best sip for yourself by weighing the benefits and drawbacks of various Systematic Investment Plan(SIP). To know SIP Investment is Good or Bad? first let’s understand SIP.
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Systematic Investment Plan(SIP)
A Systematic Investment Plan (SIP) is a form of mutual fund investment in which an individual selects a mutual fund scheme and deposits a predetermined sum at predetermined cycles.
SIP investment plans entail spending a small amount throughout months rather than a large sum all at once, which yields a better return.
Type of SIP
There are basically three types of SIP which are popular now a days:
- Top-up SIP
This SIP helps you to gradually boost your investment level, allowing you the ability to spend further when you have more income or money to invest.
This also aids in getting the most out of investments by allowing frequent investments in the top and highest returning funds
- Flexible SIP
As the name implies, this SIP plan allows you to spend whatever amount you want. According to his or her own cash flow conditions or desires an investor may raise or reduce the amount to be allocated.
- Perpetual SIP
This SIP Plan enables you to continue investing even after requirement date has passed. Upon 1 year, 3 years, or 5 years of investment, a SIP usually comes to an end. As a result, the investor will withdraw the sum invested whenever he wants or according to his investment needs.
Is SIP a Good Investment?
Here are the major reason why SIP is a Good Investment:
1. No Knowledge Required
If you don’t have a lot of financial information regarding how the market works, SIP might be the perfect investment choice for you. You don’t have to waste time analysing market trends or determining the best time to buy shares.
You can sit down and enjoy with SIP because the fund is automatically deducted from your bank and invested in mutual funds.
Furthermore, because of the frequency, unlike lump sum funds, it means that you are consistently attempting to expand your investments.
2. Average your funds
The benefit of average your funds comes with SIP. With average your funds, you can gain benefit of market fluctuations because your investment sum is constant over a wider duration of term with SIP.
The cost of each entity is averaged out by the specific sum you spend by SIP. So, when the demand is low, you can purchase more stocks, and when the market is strong, you can buy less units, reducing the overall price per unit.
3. Compounding
SIP is a method of investing that guarantees you are still striving to increase the value of your funds. The systems ensure that your money develops over time, rather than a lump sum where you might forget to spend any time.
Due to the total of your investment and the returns compounded over time, the tiny amount you spend daily expands to a broad corpus.
Risk in sip investment
Here are the major risk in SIP investment:
1. Cost of Manage
The market analysts’ and fund managers’ salaries are paid by the customers. When selecting a mutual fund, among the first criteria to recognize is the total fund management fee.
Excessive management charges do not imply stronger investment profitability.
2. Diversification
Diversification reduces the risk of losing money, but it also dilutes your earnings. It means your profit will be lower than what is can be due to this diversification.
3. Risk of Market
This is the major risk in sip investment. Some time some stock under perform for long period for that time your investment will not increase as comparison to the markets.
Now let’s discuss the main point is sip good?
SIP Investment is Good or Bad?
It is totally depends on your personal capabilities & conditions which make sip good or bad. What is your own views regarding money, your working conditions and also the capabilities to handle money.
Examples of sip is good or bad
If you have a busy schedule in life & cannot keep an eye on markets and also don’t have knowledge of stock market than SIP is best for you.
While if you have enough time and can gain basic knowledge of stock market than you can directly invest in stock market. However, risk is much bigger than SIP in direct investing.
Whereas, one more option is there, that you can divide 50-50% investments in both of the options. This is the best way to manage your risk and increase your profit.
Is It Good to Start SIP at a Market High?
Investing via SIP eliminates the need to time the market and allows you to focus on ‘time in the market.’ When you contribute in a SIP, you collect more mutual fund units when prices are low, resulting in more beneficial in terms of returns when the stock market recovers. Therefore, when prices are high, you acquire less mutual units.
Conclusion
This is all about is sip a good investment for our side. You can make your decision about SIP Investment is good or bad by taking these factors in consideration.
These options can help you in compound your funds & minimizing your risk as well. let us know your views about is sip good or bad the comment section.
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What to Read more about SIP?
BUY Now
FAQ About SIP Good or Bad
What are the Drawbacks of SIP?
Cost of Managing, Diversification and risk of market.
What are the Benefits of SIP?
No Knowledge required, Average your funds, compounding.
What is the Full form of SIP?
Systematic Investment Plan.
What are the different types of SIP?
Top-up SIP, Flexible SIP and Perpetual SIP.
Sip vs one time investment in mutual funds?
SIP is always better than one time investment in mutual funds.
