SIP stands for Systematic Investment Planning. It is a method of investing in Mutual Funds. SIPs in general, encourage investing in a disciplined manner.. Mutual Fund houses have introduced daily SIPs. Such SIPs also cut worries on market volatility and timing.
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What is the ideal method of investing in a mutual fund? It is better to start investing in mutual funds through SIPs, rather than lump sum investments. If you have a lump sum, you can invest in liquid funds and start a Systematic Transfer Plan (STP) to equity funds.
See Also: Benefits Of Systematic Transer Plan
What is an STP?
Through an STP, you authorize a mutual fund, to transfer a certain amount or switch certain number of units, from one scheme to another scheme of the same mutual fund house. This is done periodically and you can decide the time intervals of the transfer.
1. Top-up SIP:
A top-up SIP allows you to increase the amounts at regular intervals. This lets you take advantage of a well performing mutual fund scheme by increasing the amounts of contribution. If you get a salary hike, you can increase your SIP amounts.
2. Flexible SIP:
In a flexible SIP, you are free to increase or decrease the SIP amounts as per your convenience. If you get a raise in salary, you may increase your SIP amounts. If you face a cash crunch, you can skip or pause your SIP payments, till you get in better shape.
3. Perpetual SIP:
A SIP is opened for a fixed period of time like a year, 2 years, and so on. If you do not enter the end date in the SIP mandate, it is deemed to be a perpetual SIP. Therefore, you may redeem the fund, whenever you like or when your financial goals are achieved.
4. Trigger SIP:
Trigger SIP is suitable if you have knowledge and awareness on financial markets. You schedule your investments either at an index level, NAV, event or a date. It encourages speculation.
As the name suggests, daily SIPs involve investing a fixed amount in mutual funds on a daily basis.
The industry SIP book has a volume of Rs 7,200 Crores on a monthly basis and it is growing rapidly. SIP money via Domestic Funds (DII’s and retail investors), fills the void caused by the exit of Foreign Institutional Investors (FIIs) by pumping money into equities.
Daily SIPs help in averaging investment costs; you also earn higher returns. This is because of the quantum of transactions over the period.
The basic nature of the equity market is volatile. Hence, it is very difficult to time each move in line with the market. In fact, you should study the market first, only then you will be in a position to predict market movements. Therefore, what can teach you this better than a daily SIP?
Daily SIPs average out the market, hence you do not have to worry about the timing of your move.
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Of all the asset classes, equity is the only one which can beat inflation. Indian investors are no longer hesitant of investing in mutual funds. Product recategorization of mutual funds has made mutual funds investor-friendly.
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