Investing is one of the most significant decisions anyone can take in their lifetime. Most people will make the process complicated during investment time by overthinking, such as what is the best time to start? How much is good to invest? Where to invest? And many more.
If you are wondering, “what is an SIP calculator?”, you can get the best solution and find answers to all your questions. It is essential and beneficial for everyone to know about this tool and experience its benefits.
What is a SIP?
SIP stands for a systematic investment plan, which is the best way to make your investment. This is a software tool where you can invest money.
You have to invest a fixed amount that is as less as Rs 500/- on a regular period in a mutual fund.
The standard investment period can be your choice; make a wise decision. The usual period can be weekly, quarterly, monthly, or annually.
As time passes, you will generate a significant amount, and your wealth automatically increases. This can be a great benefit, and you can see the result in the long run.
How Does SIP Work?
Most people are unaware of this tool and don’t know how it works. Take a look:
- Before you start investing money, knowing what a SIP calculator is and how it works is essential. It is mandatory for every person to be KYC (Know Your Customer) compliant to start an investment in a mutual fund by using the SIP tool. KYC includes submitting documents such as PAN cards, bank account details, and identity proof.
- After you get a valid KYC, you can invest the amount by filling out an application form physically or online by using AMC (asset management company) or other platforms according to your comfort and convenience of the fund.
- When selecting SIP investment, you have to choose the frequency of investment, like any date, quarterly, monthly, etc. Otherwise, you can also set a particular date for SIP that are available.
- After making the right decision, your bank account will be linked to the investment account, and the funds can be transferred from your bank account to the account you chose to invest in using the SIP tool.
- If you begin with a monthly SIP investment, you have to continue the investment every month on the same date. A fixed amount can be credited and debited from your bank account to the fund for getting a unit creation.
- Later, the fixed amount can be converted to units in the fund depending on the current NAV (net asset value), and it can be credited to your account, i.e., the mutual fund investment account.
What are the Advantages of Using SIP?
Investing via SIP can offer several advantages when compared to lump sum investment. The benefits are as follows; take a look:
1. Low Entry Level
You can start your investment with a significantly fewer amount of Rs. 500/-, and it will not become a burden for you to pay the amount at regular intervals. Decide at your convenience.
2. Rupee Cost Averaging
As the SIP investment is made periodically, you will get more units when the market falls and can get fewer units when the demand is high. After a particular time of SIP investing, the average purchase cost decreases less than the existing NAV. This particular concept is called rupee cost averaging
3. It is Not Required to Timing the Market
Doing a regular interval of investment via SIP can assist you in taking advantage of a particular market volatility and avoid the requirement to time the market.
Hopefully, this article benefits a maximum number of people who can start their investment using the SIP tool.
T.L. Morson and Associates, PLLC says
Certainly, one of the best ways to save money. This works especially for young, new investors. I love the idea and I wish it was promoted more.