The capital and commodity markets are fascinating places to make money and fulfil your financial goals. However, not everyone understands market volatility to place pinpoint bets. SIP or a Systematic Investment Plan is a preferred route for such investors. SIP schemes help you beat volatility and earn consistent profits. This article defines what a SIP is, its benefits and factors to consider before investing in SIPs.
What is a SIP Scheme?
SIP is the abbreviated form of Systematic Investment Plan. Investors can invest in mutual funds in two broad ways – lumpsum and SIP.
Lumpsum investment refers to a single payment of INR 5,000 or more. Lumpsum also refers to any investment of INR 1,000 or more in an active mutual fund scheme. In contrast, a SIP means investment at fixed intervals. SIP investments depend on the scheme type and fund house. The minimum investment is usually INR 500 and may extend up to INR 2,000 per month.
The most common mode of investing in a SIP is the monthly mode. So, if you opt for the monthly investment mode, the investment amount will be automatically deducted from your bank account. However, besides the monthly mode, you can also opt for the quarterly, half-yearly, or annual mode of SIP investment.
SIP investments are possible in equity, debt, commodity and index funds. However, not all mutual fund schemes allow SIP investments. As a fact, only open-ended mutual fund schemes allow a SIP.
Unlike close-ended mutual fund schemes, SIP schemes do not have maturity dates. Some schemes have been running for more than three decades. The best feature of a SIP is that you may withdraw your investment any time you want. However, it is good to know that withdrawals before one year from the investment date are generally chargeable, as AMCs levy a 1% exit load on withdrawals before a year.
Now that you know what a SIP is, let’s discover why you must include a SIP to make your portfolio attractive. The following sections also mention the factors you must consider when investing in SIP schemes.
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Why Investing in SIP Schemes is a Must for Healthy Capital Growth
Compounded Capital Growth
Investing in SIP is crucial for earning compound interest. This is because compound interest provides faster capital growth since your investment earns interest on interest. So, if you invest INR 20,000 in the first year and get an interest of INR 2,000 or 10%, the interest will be calculated on INR 22,000 and not INR 20,000 in the following year. Hence, SIP investments can fetch excellent returns if you stay invested for the long term.
Before investing in a SIP scheme, you must check its past performance since a high growth fund offers better opportunities to make money by providing stable returns. PGIM Mutual Fund SIP schemes, for instance, have consistently delivered better-than-benchmark returns and can suit your investment needs well.
Stop Worrying About Volatility
Depending on an investor’s experience, volatility might be their friend or foe. Investors lose money if they do not understand volatility. However, if someone understands volatility well, the market can make them richer than they ever expected. But, as a fact, only 5% of all investors understand volatility.
So, if you are unaware of volatility, SIP investments might be your best bet. SIP allows you to invest in all market conditions – bullish, bearish, and sideways. And since your investment spreads out, the risk of capital loss reduces.
Although SIP schemes are designed to minimise losses, timing is crucial to identifying the right investment time. You must analyse the market condition to enter a SIP scheme and try to top it up with a lump sum when the market is down. This can expedite capital growth and enable you to fulfil your financial goals quickly.
Conclusion
Finding a suitable SIP scheme is vital to realise the full potential of mutual funds in India. PGIM Mutual Fund presents a host of opportunities to benefit from the high-growth Indian markets. Check the top-performing SIP schemes to make a wise decision.
