Investing your hard-earned money is a smart way to ensure that you’re planning for your future financial security. However, there are many options available in the market due to which an investor is in the dilemma of choosing the right investment plan. To choose the right kind of investment ensuring the security of your funds, it’s crucial to understand – “What is a systematic investment plan?”
WHAT IS A SYSTEMATIC INVESTMENT PLAN?
SIP stands for Systematic Investment Plan; it is a smart way to invest your money in mutual funds. Rather than investing large amount at a specific period, SIP allows you to invest a certain amount at frequent intervals i.e. monthly, weekly or quarterly. With the SIP plans, investors can easily and quickly plan to secure and build wealth for their future without any trouble. The “S” in SIP stands for, “Systematic” – which is an organized investment strategy which can yield much better benefits and returns over a long period of time.
Once an individual has decided to invest in mutual funds through SIP then they can choose from the wide variety of mutual fund offerings. The next step is to decide on a fixed amount that they have to pay and intervals which could be weekly, monthly or quarterly.
WHAT ARE THE BENEFITS OF SYSTEMATIC INVESTMENT PLANS?
Systematic Investment Plans (SIP) has various benefits to offer their investors. Some of them are mentioned below:
- SIP is a systematic and organized way of achieving long-term goals especially for those who aren’t willing to invest in long-term mutual funds. It allows investors to create their financial wealth.
- SIP demands discipline for successful investments. An investor should be committed to paying a fixed amount on a regular basis to accomplish their desired goals.
- Investing in a SIP is a hassle-free process, it’s quick, easy and simple to maintain the investment plan. can choose the auto-debit option to pay the fixed amount.
WHAT ARE THE RISKS INVOLVED IN SYSTEMATIC INVESTMENT PLAN (SIP)?
There’s a mistaken belief that SIP always generates positive results. But, even in mutual funds, there’s no assurance of desired returns. As there is a very popular tagline which sums it all – “Mutual funds and Securities investments are subject to market risks.” The risks involved in systematic investment plan are as follows:
- LIQUIDITY RISKS
Liquidity risk is basically a financial risk, where an investment or financial security cannot be traded quickly in the market for money because of a lack of marketability, among many reasons.
- FLUCTUATION IN MARKET
Another risk involved in systematic investment plan is fluctuation in the market value due to policy reformation and formation of new political parties. If there are major changes happening in the policy, then it can be dangerous for the reputation of the investment in the free market causing significant losses to investors.
- INVESTMENT’S DECLINING VALUE
Whenever an individual decides to invest in mutual funds, the process of paying the fixed amount either monthly or quarterly is totally dependent upon the investor. The fixed amount will be deducted directly from the bank account and it will be invested in the mutual funds that an investor has chosen. But, an investor is never aware of the middlemen, inner workings and areas in which your money is being invested. Thus, it can lead to lesser cash-in-hand or even loss.
- FRAUDAs an investor, you don’t know about the middlemen involved in this long process and there are chances that you might get deceived or they charge some hidden fees from your profits. Such fraudulent practices are very common in mutual fund investment plans to dupe investors.
- FOREIGN INVESTMENT RISK FACTOR
Many mutual fund investments rely heavily on foreign investment and currencies. Once the values of currencies rise, it’s perfectly good for foreign investment. But, if the value of currency declines, foreign investment value automatically declines and leads to failures and losses to investors.
SOME OF THE BEST SYSTEMATIC INVESTMENT PLANS OF 2018
|SCHEME NAME||THREE YEAR RETURNS (%)||FIVE YEAR RETURNS (%)|
|SBI Bluechip Fund||7.92||15.23|
|ICICI Prudential Bluechip Fund||10.94||14.33|
|HDFC Mid-cap Opportunities Fund||11.06||22.89|
|Franklin India Equity Fund||7.63||16.41|
|Mirae Asset India Equity Fund||12.76||18.81|
Lastly, it’s good to invest your money for wealth management and for better financial security. However, it’s essential to look after the pros and cons even while investing SIP’s because they are risky too. Therefore, try to consult any professional and understand the policies and nature of investment before investing your money in SIP.