A Systematic Investment Plan (SIP) is an easy way to invest in company stocks and shares without having to worry about market fluctuations. Learn more about them here!
SIPs are a great way to start investing in the stock market. They’re also a good option for people who aren’t comfortable with the idea of buying individual shares.
What is a Systematic Investment Plan?
A SIP is a plan where investors buy shares of a company at regular intervals. This means that instead of buying one share at a time, investors buy multiple shares at regular intervals.
By doing so, they can spread out the cost of purchasing shares over a longer period of time.
You can start SIP with any of the leading banks, such as SBI, ICICI, HDFC, or any bank that has investment banking facilities.
Why Invest in Stocks Through SIPs?
There are several reasons why people choose to invest through SIPs. One reason is that they are less expensive than other investment options. Another reason is that they allow investors to diversify their portfolios by investing in different companies.
Apart from that, investing in SIPs makes you financially disciplined. The compounding effect of it is enormous. If you choose the right portfolio, you might end up earning more than you expected. In the present market, some schemes of mutual funds have decent return rates.
How to Start a Systematic Investment Plan?
If you want to start investing through SIPs, there are two ways to do so. First, you can open a brokerage account with a financial institution. Second, you can use an online broker such as SBI Mutual Funds. Both methods require you to set up an automatic monthly transfer into your account.
A Demat account is one of the most common forms of investment platform in the money market. There are various banks and financial institutes that provide the Demat account facility. You may opt for which bank to go with and get access to it.
Using a Demat account lets you directly invest in the stocks and shares of companies in which thorough market studies are required. As such, having sound knowledge of the trending market becomes necessary if you want to earn better returns.
Otherwise, it is advisable to rely on your bank to do your task. Share your risk appetite with your banker; let them do the hard work and enjoy the better returns you get.
How Can I Start Investing in Stocks?
Once you decide to invest in stocks, you need to choose how much money you want to put into each stock. This is called the initial investment amount. You can also make additional investments at any point during the year. These are called subsequent investments.
As you go on doing SIP at regular intervals, you may add or top up every year or every half-yearly. It would keep on increasing until you put a stop to having top-ups.
To start a SIP, either visit your bank or you can invest directly online.
How Systematic Investment Plan Works?
Think of SIP as transportation that will let you reach your destination. With minimum risk, it will take you through all the hurdles along the way. But you cannot make shortcuts to reach your destination. Time and discipline are what make SIP a wonderful savings plan.
A SIP works by investing a set amount of money every month or every week. If the price of the stock goes up, then you will earn more money than you invested. If the price drops, you will lose less money than what you invested.
Likewise, buying when the share price drops makes you wealthier in the future. SIPs spread the risk evenly. When the price is high, you are purchasing fewer shares, and when the price is low, you are purchasing more shares.
If you have chosen the right scheme, then you might have good returns. In a way to say, investing in SIPs is better than investing in lump-sum amounts. When your shares go down, you will have to either stay and watch or you have to switch to other schemes, which again depends on how well the portfolio of the new scheme will perform.