Updated on Dec. 6, 2022, 1:17 p.m.

A Systematic Investment Plan or SIP is a type of investment done in the process of mutual funds, where in the investor will make regular investments for the money in order to achieve the financial targets in the longer run.

This is very simple as it can be done by fixing the target amount and the amount that you will invest on a regular basis in the Mutual Funds that you have opted to pay for.

Let us say that you have decided to invest INR 600 for a period of 6 years, you can go ahead and establish the SIP with a recognized mutual funds and automate your work for the relevant period.

Furthermore, you can also go ahead and opt for more or the lesser investments in the Mutual Funds. At present the form of investment in the Mutual Funds are said to be done Weekly, Monthly, Quarterly, Semi Annually and so on.

Furthermore, this is also vital to analyse and determine the SIP because this is not an asset by an investment that is done in the Mutual Funds. Furthermore, any contribution that you do in your Systematic Investment Plan or SIP will be considered as the investment done towards the Mutual Funds.

How Does the SIP Work?

When you establish the SIP, there are some vital things you must know about the SIP and there are three ways to invest in the SIP from beginning to the end points as your funds are invested in a systematic manner. Furthermore, there are certain steps to be followed while selecting a proper SIP and they are given below as follows:

  • Select a Mutual Funds Scheme: When you first investment journey, you must also select a proper and effective mutual funds, however we must be careful about the fact that a mutual funds that is working well today will not come with the promise that it will perform in same way with same returns.
  • Select Investment Frequency: The next major step in the field of SIP is to choose an effective investment pattern that you will be able to associate with. It is believed that the common choice among the salaried persons, corporate executives, and other individuals that receive the monthly salary in a systematic manner. Furthermore, you can also go ahead and invest the money weekly, monthly, quarterly, annually.
  • Automatic Debit Based on NAV (Net Asset Values): After the creation of the NAV, the money will get debited into your bank account. As per your instructions, the amount will get debited each month based on the standing instructions given by you. This process is automatic where in the specified amount gets debited from your account that you have agreed upon while establishing the Systematic Investment Plans.

Wrong Notions About the Sip

There are some wrong notions that are getting floated in the capital markets about the Systematic Investment Plans (SIP) and they are given below as follows:

  • SIP Never Makes Loses: The Systematic Investment Plan is one of the major ways to invest in Mutual Funds, and they are said to be highly linked to the markets in India. There is a saying floated stating that SIP is an evergreen investment and it never makes loses. There is a basic nature of the capital markets, where in the market activities goes through the boom and busted. Hence you should not be surprised if the stock market performs like cows running into the slaughter houses, after you begin your Systematic Investment Plans the portfolios will always shows a great loss, as long as the declining phase exists in the market.
  • SIP Returns Always is Good: The Systematic Investment Plan always gives better returns at a time when you start your investment in huge markets. There is a notion flaunted in the capital markets, stating that SIP returns are like digging a gold mine and returns will be awesome. SIP is just another branch of the big tree known as the Capital Markets. There are various market fluctuations and scenarios leading to the lowest SIP returns. If an SIP return is not giving proper returns on investments, then the market has to be blamed as the market will not always grow vertically. SIP is the best option compared to the Equity Funds and some of them have a unique attitude to invest in Equity Funds when the market is striking good fortunes, and remove the money when markets fall. The SIP helps us to prevent such actions.
  • Stock SIP is good compared to Fund SIP: Most of the stock Systematic Investment Plan will always play a major role in reducing your purchase price and also help in enhancing your money if you select stock that will override the market conditions. However, this is still finding golden needle inside a haystack, as you will have to turn the world upside down by keeping an eagle eye on the company and the relevant segment very closely. 

Most of the stock SIP can go against you in many ways like once when you accumulate a stock using the SIP, you will have large stocks in your account. 

Furthermore, returns in the stocks originates by finding them entering the stock at low prices and keeping a close watch on the business of that company. If you are a regular investor, you will see that no stock is everlastingfor any person at a particular price. It is observed that most of the stocks, that is giving you good returns and is a runaway hit in the markets will not yield the revenue and will be considered avoidable.

To be honest the Systematic Investment Plans is one of the major financial tools available in the stock and capital markets to keep you away from wrong practices leading to problems in getting your returns. Always have a good Fund Manager to replace the sick and the ageing SIP with the healthy and everlasting SIP to safeguard your interest and promote your welfare.

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