Why SIP Investment Is The Best Investment Mode?

A Systematic Investment Plan is often considered the best mode to invest your money. It is regarded as an efficient way to build wealth over time and a safer option for new investors.

What is SIP?

SIPs essentially mean periodically setting aside fixed money for investment in different funds and schemes. Popularly, investors want to invest in Mutual Funds like Index Funds, Tax-Saving Equity Options or other Debt and Liquid Funds. However, it is not always possible to time the market. We know that a common trading strategy is buying an asset cheap and selling it expensive.

With SIPs, there is an inherent benefit of rupee cost averaging that removes investors’ headache of timing the Net Asset Value of the funds. Since fixed investments are made after fixed intervals, SIPs are for averaging the cost of purchases over time. Therefore, more units are bought during intervals when the fund is down and less when the NAV is high.

Not only that, but processes also help develop financial discipline, especially when investors are just starting. Again, it brings about much-needed consistency for a long-term investment journey. Besides, the systemic investment mode is a convenient option for two reasons.

Firstly, an investor need not make subsequent payments at the time selected. For instance, in a monthly SIP, the bank automatically deducts the amount monthly through the transfer mode chosen. Secondly, these monthly investments start with a small amount of Rs. 500. Since it is a diversified portfolio, each unit bought represents that portfolio. Also, not all need to be wealthy or a finance expert to start investing in the markets.

Another benefit of the best Demat Account for SIP is an option to increase investment amounts with the change in income. Therefore, with the increase in salary or growth in business, investors can increase subsequent SIPs. This is called SIP Top-Up or Step-Up SIP. The top-up option gets exercised by choosing a percentage increase or a fixed amount. For example, a top-up of Rs. 1,000 or a 20% annual increase on the SIP amount.

To understand this better, consider the investment of Rs. 500 every month for 20 years with and without the top-up option. This is when the expected rate of return is 12% pa and top-up are either fixed or percentage-based.

 

Regular SIP
	SIP Type	SIP Amount	Top Up	Tenure	Amount invested	Returns	Return %	Wealth Created
	Monthly	Rs 500	–	20 years	Rs 1,20,000	Rs 3,79,574	12	Rs 4,99,574
SIP Top-up
	Monthly	Rs 500	Rs 1000 p.a	20 years	Rs 24,00,000	Rs 35,97,657	12	Rs 59,97,657
	Monthly	Rs 500	20% p.a	20 years	Rs 11,20,128	Rs 11,34,147	12	Rs 22,54,275

 

Having seen the SIP process, experts rightfully suggest starting early to gain higher benefits of compounding. Since the enrolment process is also simple, there is no reason to delay starting a SIP. Because the annual inflation cost is considered a hidden ‘value killer’ if the money is not invested.

For starting SIPs, investors must finish the fund manager’s KYC process. Once the AMC clears the documentation process, select an investment frequency and the amount. As mentioned, the amount can be Rs. 500 and increase in multiples thereof. SIPs frequency can be weekly, monthly, quarterly, bi-annually, or annually. Select a top-up frequency if the investor opts for that. These choices are based on product choice and risk-return profile according to individual investment goals and financial advice.

 

What is noteworthy here is that the best Demat Account for SIP need not be bought from the asset management company (AMC).

Disclaimer – ICICI Securities Ltd. ( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. – ICICI Venture House, AppasahebMarathe Marg, Prabhadevi, Mumbai – 400 025, India, Tel No : 022 – 6807 7100. AMFI Regn. No.: ARN-0845. We are distributors for Mutual funds. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully. Please note, Mutual Fund related services are not Exchange traded products and I-Sec is just acting as distributor to solicit these products. All disputes with respect to the distribution activity, would not have access to Exchange investor redressal forum or Arbitration mechanism. The contents herein above shall not be considered as an invitation or persuasion to trade or invest.  I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. The contents herein mentioned are solely for informational and educational purpose.