Introduction to SIP
Financial success brings most other achievements in life. You put in a lot of work to earn money and achieve your life goals. And you must let your money work for you with smart investing. By investing with a Systematic Investment Plan (SIP), you can be sure that you are on the right path.
SIP lets you invest a fixed amount of money in mutual funds every month over a period of time. With SIP, you do not need to time the market for investing, you average out your cost of investing, and also stand to benefit from the power of compounding. Even when you are not working, your SIP is continually working towards achieving your life goals.
Goal-based SIP Investments
Financial goals are essential to have in life. But most do not know how to plan and invest to realize them. While planning your financial goals, it is crucial to identify each goal in terms of a specific amount it will take to achieve that goal. And also the time you will take to meet each goal. This, in a nutshell, is making goal-based SIP investments.
Benefits of a SIP
SIP lets you invest at regular intervals in a mutual fund scheme. You get many benefits as you start investing in a SIP, like:
- You become disciplined at investing – Out of all the benefits, the discipline that comes with SIP investments is one that holds the most value in life. As you commit to investing a specific amount for a fixed period, you plant seeds for long term wealth creation.
- You benefit from something called rupee cost averaging – When you invest through SIP, you get the benefit of rupee cost averaging. You get more units when the Net Asset Value of your mutual fund scheme is low and fewer units when it is high, which brings down the average cost of units in the long term.
- You benefit from the power of compounding – Investing in a SIP allows you to benefit from the power of compounding. Regular investments lead to compounding, that is you earn interest on your interest as it keeps on getting added to your original amount. Compounding is the key to long term wealth creation.
- You have flexibility in investing the way you want – You can choose the amount, the duration, and the interval of your SIP plans. You may even change the amount and pause or stop your SIP plan.
- You can save tax with SIP mutual funds – By investing in some tax-saving SIP funds, you can save tax. Thus, with tax-saving SIP funds, you save tax as well as generate wealth.
How SIPs work
As you apply for a SIP plan, the amount is debited automatically from your bank account. It is regularly invested in the SIP mutual fund of your choice. You are allocated mutual fund units depending on the NAV of your SIP mutual fund during the time.
With every SIP investment, units are added to your account as per the market rate. With every investment, the amount that is getting reinvested keeps getting bigger, and so does the return on your investment.
Introduction to Smart SIP
First of all, know that Smart SIP can mean two completely different things.
Smart SIP is where your money is invested as per the prevalent market conditions. Under Smart SIP, you can aim to time your SIP investment for higher returns as compared to the regular SIP.
Again, an SIP is also called Smart SIP when the mutual fund house offering the scheme also offers life insurance cover to those investing in their SIPs.
We are talking about the second kind of Smart Systematic Investment Plan here.
Some mutual fund houses offer Smart Systematic Investment Plan to their investors. They have different names for SIP with life insurance like SIP insure, SIP Plus, Century SIP, and what we are discussing here—Smart SIP. These are group insurance policies provided free of cost by fund houses to SIP investors.
What Smart SIP offer
Some mutual fund houses are offering something more with their SIP plans—a free in-built insurance cover to SIP investors based on their contributions and tenure. Here, the cost of insurance is borne by the mutual fund house. The objective of such a scheme is to encourage their investors to continue their SIP contributions and keep them invested in the scheme for the long term. The cover starts with the start of the SIP and without any medical tests.
With a Smart Systematic Investment Plan, you can opt for a free insurance cover while starting a SIP. No medical tests are required because these are group policies. The cover is mostly valid until 55 years of age.
Thus, SIPs have been in the market for a long time and are a tried and tested way of generating wealth by investing. But if you want additional benefits, you can even go for a Smart SIP scheme to cover yourself with free life insurance.