What is SIP and What is SIP Full Form?

Full form of SIP is Systematic Investment Plan. SIP is an investment strategy offered by different mutual fund houses to the investors. It is a convenient process of investment wherein, the investors can invest a fixed sum of money regularly in their mutual funds. The investment can be made on a quarterly, monthly or weekly basis.

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A fixed amount is auto-debited from the policyholder’s account and invested in mutual funds. A pre-decided number of units are allocated at the current market price. Since these plans are flexible in nature, the investors can increase the amount or discontinue investing in the plan whenever they wish to.

Why Should I Invest in SIP?

Let’s take an example of a common man. Ravi, a 32 year old accountant lives in a rented house with her lovely wife and a 4 year old daughter. His primary financial goals for the next 20 years are, to buy a car and a house and get his daughter married. He does invest in bonds but that is it.

When projected into the future, his savings (yielded from bonds) will not be enough to suffice his future expenses and he’ll fall short of achieving his goals. This will primarily be due to 2 reasons:

  • The bitter fact that the inflation will grow faster than the returns, eventually dwarfing his savings at the end of the investment tenure.
  • Had he invested in equity instruments rather than bonds, he could have earned a higher return.

Ravi justifies his investing in bonds as he believes in playing it safe. So the question remains intact, what should he do to achieve a substantial growth without getting affected by the turbulence of the market. Well, the only way Ravi can achieve his financial goal is buying a Systematic Investment Plan.

And it’s a good enough reason for you too, to get a financial goal is buying a Systematic Investment Plan.

How to Get Started with SIP Investment?

When it comes to SIP, getting prepared is as important as playing the game itself. You need to follow 4 easy steps before you actually start investing in SIP.

  • Set your financial goals – Your goals should be specific and attainable.
  • Set a timeline – Decide when you need the money; this will be your investment tenure.
  • Decide how much you need to invest – With the help of a SIP calculator, figure out the amount you need to invest regularly to accomplish your financial goals.
  • Make a choice – Consult your financial advisor and go for a plan that meets your needs well.

Now you are all set to go. The money can be paid by post-dated cheques or through ECS (Electronic Clearing Service) in which you give a standing instruction to your bank to auto debit the investment amount from your account every month. The sum that you invest every month in the chosen SIP is invested in a mutual fund and makes money for you. You can always log on the company’s website and track your portfolio.

*All savings are provided by the insurer as per the IRDAI approved insurance plan. Standard T&C Apply

How does SIP work?

Systematic Investment Plan(SIP) works more or less like a mutual fund. The handling of your money is done by money market experts and is none of your headache. But it is good to know how SIP makes your money grow. Well, there are two underlying mechanisms behind the working of SIP.

Effect of Compounding

Unlike simple interest, the compounding involves making the interest earned, a part of your base capital and the subsequent interest is calculated on the basis of this new increased capital. Thus, Compound Interest leads to an exponential growth of your money. The effect of compounding increases as the investment tenure increases. The table below illustrates the fact.

 

SIP Investment

Input (Rs)

SIP Investment

Tenure

Rate of

Interest

Returns (at the end of the

tenure) (Rs)

Total Output

(Rs)

Simple Interest

100

5 years

10%

50

150

Compound Interest

100

5 years

10%

61

161

 

As can be seen, there is a 7% rise in the total output when the interest is calculated on a compounding basis. This seemingly small difference in the final output becomes staggering as the period of investment lengthens. The table below shows the figures when calculated for a period of 20 years. As you can see, the difference becomes even more than twice in the long run, when the effect of compounding is playing up.

 

SIP Investment

Input (Rs)

SIP Investment

Tenure

Rate of

Interest

Returns (at the end of the

tenure) (Rs)

Total Output

(Rs)

Simple Interest

100

20 years

10%

200

300

Compound Interest

100

20 years

10%

573

673

 

Rupee Cost Averaging

Consider a scenario – Gaurav decides to invest in a SIP and buy the market units by investing Rs 1000 per month for 6 months. Obviously, he’ll be bagging more units when NAV is low and lesser units when NAV is high. On the other hand, Rashmi makes a one time investment by buying units for Rs 6000 at the current NAV. Who do you think is going to end up with a lower cost per unit at the end of the 6 months period?

Month

NAV (Rs)

Monthly

Investment

made in SIP (Rs)

No. of

Units

Average

Cost Per

Unit

One Time Investment

made in a plain Mutual Fund (Rs)

No. of

Units

Average

Cost Per Unit

1st

15

1000

67

12.42 Rs/Unit

6000

400

15 Rs/Unit

2nd

12

1000

83

   

3rd

10

1000

100

   

4th

12

1000

83

   

5th

15

1000

67

   

6th

12

1000

83

   

Total

 

6000

483

   
*All savings are provided by the insurer as per the IRDAI approved insurance plan. Standard T&C Apply

As can be seen from the table above, Gaurav will be enjoying a gain of Rs 2.58 per unit over Rashmi. Gaurav played up smart by investing consistently for a period of time. In the long run he’ll be less and less affected by the ups and downs of market, as the time period will lead to an averaging of the market fluctuations. This effect is called as Rupee Cost Averaging and is primarily responsible for making SIP a lucrative investment.

Perks of SIP

  • Flexible and affordable investment options – You can always start with smaller amounts and increase the sum of investment as your earning grows with time.
  • Free of entry or exit charges – If you invested in SIP and discovered that it doesn’t work well for you, you can put a brake to making further investments and withdraw every single penny without incurring a penalty.
  • Saves you time – By opting for ECS, you drive handsfree. You can go to your own business while your money takes care of itself.
  • Keeps you stress free – Unlike a mutual fund, you are free of the tension stemming from the ups and lows of market.
  • Saves you overloading your head – You need not to have a know-how of the market or the tactics that go into switching between funds. It is all done for you by the money market experts.

Keep in Mind

  • Start early, earn bigger returns
  • Stay longer, enjoy the compounding effect
  • Be patient, the money is sure to grow in the long run
  • Be consistent, never skip your monthly payment

Like the hare-tortoise story, the success mantra in SIP besets, not in how fast you run but how long you run. Here the race is won by starting early and staying longer.

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What is SIP and What is SIP Full Form? Reviews & Ratings

4.3 / 5 (Based on 25 Reviews)
(Showing Newest 25 reviews)
Raj
Ooty, September 02, 2020
Start with minimum amount
I have recently got the SIP plan from the policybazaar and it is really easy to get the plan from the online market. Not only this you can also start from the minimum amount of Rs. 500. It is very much convenient in nature and I really love my plan. Thank you policybazaar.
Adnan
Kohima, September 02, 2020
Great assistance
I have got the good amount of benefits from the policybazaar. The customer care team of policybazaar is very good and they understood my query very well. Thank you so much team for better assistance.
Suraj
Yamunanagar, September 01, 2020
Long term and beneficial
It is always a preferred thing that to get the SIP plan for the longer period of time. I really like the plan as I wanted it to be invested for at-least 10-12 years so that I can get the optimum profit out of the same. Thank you policybazaar.
Sonu
Bhilaad, September 01, 2020
Investment plan
I have taken the pension plan from the policybazaar and it is one of the best investment plan. It has the long term effect on the person and I can easily invest and can get the better returns in the future. Thank you policybazaar.
Ananya
Islampur, May 25, 2020
Online process
The whole process of buying the policy is on online basis. It was quite easy as I searched on website and explored various plans. I found it good and bought one.
Ashish
Sarsawa, May 24, 2020
Convenience
I am very impressed with the services of policybazaar. They are really quick. Also, it is very convenient to buy the investment plan.
Kushal
East Midnapore, May 23, 2020
Long term gains
It is the process of long term gain and to sustain our future from certain hurdles. As the things have become expensive and we should save money. So, these investments plans helps in saving money.
Divyanshu
Hagaribommanahalli, May 22, 2020
Great support system
I love the services of policybazaar and the employees working there. It’s really nice that they gave me a lot many choices related to the investment plans. Unique way to invest.
Vijay
Mansur, May 21, 2020
Choices are given
While you are planning to take the SIP from policybazaar. You can have a lot many choices to choose out of different investment plans. I got the best one and I like it.
Manish
R.g.pur, May 11, 2020
A call away
I am happy that I bought my SIP plan from policybazaar. As they are just a call away. I was having a problem with my SIP and they resolved in few minutes.
Kishan
Sialhawk, May 10, 2020
Flexibility
I can see that SIP are flexible in nature. We can choose any kind of Mutual fund and also the amount which we have to invest. Quite simple.
Jatin
Vizianagaram, May 10, 2020
Helps in financial way
It helps me in dealing with financial things. As nowadays everything has become too costly. But with the help of SIP I can manage with my finances and can save money every month for a long term investment.
Vijay
Dabhoda, May 09, 2020
Good customer service
The customer service team of policybazaar is very nice. I was in a doubt before buying a SIP plan, but with the help of them I got to know about a best plan which is according to my budget.
Rakesh
Adimali, May 07, 2020
Best Returns
I recently purchased the SIP plan for me and for my wife. I found it totally good and apt for us. It is a long term investments with great number of benefits. Thank you team policybazaar for such nice plan.
Tripti
Agalpur, April 08, 2020
One stop and best plans
I got the SIP plan with the help of policybazaar. It is one stop solution. With great returns and monthly plan I am very satisfied. If so ever I need help from the customer care team they are available to help me.
Madhuban
Zotlang, April 06, 2020
Great Returns
It is a great source of return. I have started doing it from last 2 years and I am feeling relaxed that after a certain age I would be having a good amount of money with better returns.
Mustafir
Agra, April 03, 2020
Good policy
SIP plan is quite trending and useful nowadays. It has reflected a great impact on our society. As people are more concern about future planning and saving the money. Even the SIP plans gives us good returns after a certain period of time.
Varun
Adivada, March 31, 2020
Good customer care
The customer care team is quite helpful and nice. I got full and accurate information from them. They are not so disturbing. They have a good knowledge related to the product.
Vaibhav
Ahmedpur, March 27, 2020
Easy to get plan
It is easy to get the plan. I just visited the website of policybazaar. And I got various plans. Then I called the customer care team and they explained me about each and every plan. I chose the best one.
Subhas
Ahmedpur, March 23, 2020
Good plans
I visited the website of policybazaar and found good number of plans for future savings and investments. SIP is very important for everyone who wants a good satisfaction and more savings in his or her life. I would love to recommend all these plans to my friends and family.
Keshavkant
Jatga, January 20, 2020
Reach Your Goals
After a certain period of time you can reach your goal. I have seen that higher you invest there will be higher risk but you can earn well. But lower the investment low risk and low returns. Well, I have started with a less amount so that I can check and analyse. But gradually after sometime I will get a good amount. Thanks policybazaar.
Jaikant
Pathankot, January 13, 2020
Earn Money on your Investment
It is a good way to invest money and you can earn benefits and profits in your money only. A convenient way to invest and utilise your amount. Initially I found it little bit confusing but after a while everything is being okay. People who are planning in a long term investments can do such things.
Sailja
Satlasana, January 08, 2020
Systematic Investment Plan
It is a good plan. My friend recommended me to get this plan so that I can invest some amount of money into this. Ultimately I will gain benefits after a certain period of time. It is a good plan by policybazaar and I would recommend to everyone.
Zakir
Machantola, December 31, 2019
Systematic way for making money
I have gone through the plans of policybazaar. And found that it is a systematic way to invest and gain money. The whole process is simple and you can check on time to time basis regarding your investments.
Vishal
Ara, December 26, 2019
Good Returns In Long Term
I feel that while investing into this plan I have gained knowledge regarding the same. Also, after a certain good investment I will get the good returns. Though it is long term process but surely will be good for my future. Thank you team policybazaar.
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