WHAT MUTUAL FUND SIPS ARE REALLY ABOUT
Systematic Investment Plan, commonly known as SIP have risen to popularity in the past few decades. As per a recent data by the AMFI (Association of Mutual Funds in India), the monthly SIP investment rose around 77%, from a figure of Rs 6222 crore to Rs 11,005 crores from December 2017 to December 2021. Additionally, further data shows that the asset under management (AUM) in SIP mutual funds has almost grown at double rate between April 2021 to December 2021. Clearly, investors cannot get enough of SIP investments. Do you know everything about SIP mode of investment? In this article, we will understand what SIP mutual funds are actually about. We will begin by understanding what SIP mutual funds are and the working of SIP.
What is an SIP mutual fund?
SIP is an investment facility which permits individuals to invest in the markets in a regular manner. Through SIP mode of investment, an investor may invest in mutual funds at regular intervals for a defined period of time. An investor has the liberty to determine their SIP investment amount, frequency of investments, type of SIP, and other parameters concerning their SIP investments. SIP investments allow investors to invest in mutual funds an amount as low as Rs 100 per month.
Let’s look at the working of the SIP with the help of an example. Gaurav wishes to save for her daughter’s wedding. His child, Anamika is 10 years old. He expects her to get married in the next 15 years. He estimates the wedding costs at Rs 20 lacs. Nisha, Gaurav’s sisters advises him to begin investing right now to ensure that he achieves the desired sum of corpus in the specified duration. She advises Gaurav to invest in mutual funds through the SIP mode of investment. She further explains it to him that he can use an SIP calculator to determine the monthly investment amount needed to reach Rs 20 lacs in 15 years. He decides to invest in ABC mutual fund which is expected to offer average returns at 12% per annum. Using an SIP return calculator, Gaurav understands that he would need to save and invest Rs 4003 per month for 15 years in ABC mutual funds to achieve a corpus of Rs 20 lacs at the end of the tenure. Gaurav must pay attention that the amount needed to marry of his daughter currently would be significantly more in the future, thanks to the concept of inflation. Hence, he must ensure that he inflate his investments using an appropriate rate of inflation to better plan his finances. SIP calculator can also be used to evaluate the future value of Gaurav’s mutual fund investments.
SIP investments can be a great way to invest in the markets as it helps to instill a sense of investment discipline among investors. SIP investments ensure that an investor invests in the markets on a regular basis despite the market conditions. Before you invest in mutual funds through SIP investments, ensure that the objectives of the mutual fund schemes are aligned with your risk profile, investment duration, and risk appetite. Happy investing!