Today I will talk about one of the safest investment option i.e. Systematic Investment plans (SIP). We will discuss what a SIP is all about, how it helps us in making money, and keeps us protected from market fluctuations.
WHAT IS SYSTEMATIC INVESTMENT PLAN (SIP)
A Systematic Investment Plan is an investment scheme which allows you to invest a certain amount of money regularly. It’s an investment option which is offered by mutual funds. An SIP takes a certain amount of money from you, either in cash or in form of mutual fund post dated cheques regularly.
HOW SIP WORKS?
Systematic Investment Plan (SIP) make you smarter in terms of money saving. Since you have to save a definite portion of money regularly, therefore it becomes a habit. It also allows you to actively participate in stock market, without taking risks.
Now let’s see how SIP works. Suppose, you invest Rs.1000 in any kind of SIP. When market price of shares decreases, then the investor is most benefitted by purchasing low and sells it on increasing note. The number of units purchased is actually the key to earn money. The Net Asset Value or NAV of one unit can be computed in the following manner.
NAV = [market value of all the investments in the fund + current assets + deposits - liabilities] divided by the number of units outstanding.
For example, if you have purchased a unit at 10.56 NAV in 2003 and you sold it on 7.86 NAV, then on normal conditions, you will definitely suffer a loss. But if you have invested in SIP for the same period, then you will won’t suffer from loss because you have actually spaced your investment perfectly by buying mutual fund units at regular intervals that will keep you safe from the fluctuations of the market.
Also, you can purchase a handsome quantity of units by setting aside a mere 1000 rupees each month. Hence you can see that you will go to make money over long run. Many mutual funds don’t charge any kind of ENTRY LOAD, when you opt to enter into SIP. And neither have they charge any EXIT LOAD, if you don’t want to exit before 1 year. The best way to see your money grow is that don’t touch your money for at least 3-5 years. Then only it will give you perfect returns. Of course you can lose money if your units are losing their values over a period of time, but it is nothing in compared to losing all your money in one go. So better keep some things in your mind:
1) Investing in SIP through mutual funds is one of the safest investment options in India.
2) It increases your habit of saving the money.
3) Investing your money for at least 3 – 5 years will give you the best results.
So keep on viewing this page for more investment options which can grow your money at a steady rate.
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