Systematic Investment Planning (S.I.P)- The Ultimate Guide (Setting up, Process, Advantages & Tips)

Systematic Investment planning, also known as “S.I.P” is an extremely powerful tool for building wealth over a given period of time. It is simple yet immensely effective.

Today’s video is all about systematic investment planning how you set it up how it works what are the advantages and some bonus tips on things you need to be careful about all that good stuff right after the intro welcome to the sale of finance my name’s abhishek systematic investment planning also known as si p is a brilliant investment strategy to build wealth

Over a given period of time it is extremely simple yet astonishingly effective all this strategy needs you to do is to invest a predetermined sum of money at predetermined intervals usually every month is that it surprisingly well to be honest that’s it this strategy is best suited for mutual funds you could apply it to shares and fixed deposits as well this strategy

Though is not so well-suited for real estate as the amounts involved are usually high you’ll understand what i’m trying to say as we go through the video and for those who wish to know how mutual funds work i will leave a card and a link in the description to my video which will give you the basic understanding of mutual funds now let’s see how si p is set up so

First you are required to decide upon a fixed sum of money that you wish to invest every month say it works out to be $500 in your case secondly you choose the mutual fund you want this sum of $500 to get invested in you can choose more than one mutual fund but for keeping this example simple let’s consider one mutual fund for now you will get the basic idea the

Process goes something like this you approach the mutual fund company either by visiting the branch office or online you will be required to fill up a simple form wherein you provide your details like name dress residential status specify the funds of your choice you want to invest in the amount you wish to invest every month the duration of investment and so on

The mutual fund company then asks for documents such as your tax number and id and now finally they will set up the instructions for automatically debiting that fixed amount of $500 every month from your bank account this will save you the effort of having to manually writing checks or depositing cash every month you get to specify a date of your choice when you

Want the money to be debited from your bank account that is it you are all set up this entire procedure trust me is not very complicated and is one-time activity now let’s see how s ip works let’s assume you specify to the mutual fund company to deduct $500 on the 10th of every month for the next 15 years in the mutual fund of your choice during the first month

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The first 500 dollars are deducted to form your bank account and assuming on that day the nav per unit of that fund is $10 you get 50 units which is 500 the amount invested divided by 10 which is the nav similarly on the 10th of next month again $500 get invested assuming the nav per unit on this day goes down to nine dollars you get fifty five point five five

Five five units similarly next month if the nav goes up to ten point five dollars per unit you get forty seven point six one nine zero units this procedure goes on and on on the 10th of every month for the next 15 years and when you pull the money out you simply multiply all the number of units that you have acquired over 15 years with the nav per unit of the

Mutual fund as on the date of such redemption easy isn’t it as simple as it sounds let’s look at some big advantages of systematic investment planning one cost averaging as you are investing every month at whatever nav applicable what you’re doing is that you are buying irrespective of the market conditions in our example we invested when the nav was initially

$10 we again invested when the nav per unit was nine dollars and even when it was 10.5 dollars what it does over a long period of time is that it averages the cost at which you acquire the units this is called the principle of cost averaging or dollar cost averaging it is an extremely important advantage over a period of time second no need to time the market as

Illustrated in the previous point you are acquiring units at different enemies under different market conditions and since you get the advantage of cost averaging you do not need to time the market most of the people who wait for the right time to get into the market and well that right time never comes people need to understand that it actually is that time in

The market rather than timing the market which is of greater relevance in the real world of investing so every time is the right time to invest in the market because hey in the long run it will average out so remember whenever someone talks about timing the market in case of si ps just point them towards your clock and tell that it’s always invest or clock third

Discipline what better than watching your money getting invested every month and then adjusting your expenses accordingly si p is like a marathon and not a one-off short duration sprint you get used to seeing the money getting invested every month and not being available for your consumption this creates some incredible investor discipline investment becomes a

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Part of your lifestyle and not a strange thing to run away from fourth compounding one of the biggest strengths of si p is that it enables your money to compound insanely over a period of time the initially invested some multiplies then this multiplied some other multiplies and this goes on and on if you choose a decent mutual fund with the growth option you can

Take full advantage of the power of compounding i can go on and on speaking on the power of compounding but this topic deserves a video of its own so that’s for another day fifth entry with low amounts since you are putting aside money every month to invest you can even start with a small amount you can keep increasing it as your income goes up this leaves you with

No excuse whatsoever for not investing now reminder invest at least 10% of your net income sixth flexibility si ps are generally easy to set up in many countries they are easy to manage as well as terminate if you are new to mutual funds and not too comfortable with si p just start with a tiny amount later on you can even step up your monthly investment step up simply

Means increasing the monthly amount when you income goes up or you get more comfortable with the mutual funds vii automation as discussed earlier you can enable automation of your monthly investment by setting up a direct debit or one-time mandate or any other arrangement that allows you to transfer money out from your bank account to invest into the mutual fund

Without you having to write checks or depositing cash every month you can discuss the options available with your mutual fund company and save yourself the frustration to manually work your investments it’s better gold planning you can plan for your short medium term or long term goals effectively using systematic investment planning your goals time horizon your

Age your risk taking ability will largely govern what kind of mutual fund you want to invest in i will discuss the investment options in a separate video after all those good things let’s take a look at some points you need to be careful about while investing using this technique 1 monitor your funds monitor your funds performance to see if they are still beating

The benchmark after setting it up automatically you might have a false sense of security that everything is working well just like any other portfolio review your choice of funds after some months or years depending upon the nature of your fund you don’t have to buy the best-performing mutual fund because the best-performing mutual fund today might not even be in

The top 10 a year after as long as your fund is beating the benchmark and performing well as compared to the other funds in its class you find ii do not discontinue your si p when the markets are low this is a typical mistake investors make when they see the mark is going down they pull their money out at the loss and blacklist the s ips out of their lives it is

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A given characteristic of markets especially equity to go through short-term ups and downs it is never stationary but in the long run the returns are usually positive and better than most investment instruments if you recall the example at the start of the video you’ll see that when the market is down the enof a per-unit goes down and when you are buying at a lower

Nav the same amount of investment buys you more units you basically buying more units and that to add a discount it’s just like you went shopping and you’re shopping model offered you massive discounts so please be disciplined during such tough times you will be thankful to yourself after a few years when the market goes up you will see your cheaply acquired units

Having a high nav by the way you’re welcome third just like every other investment do not forget or ignore to add a nominee for your investments it can be your spouse your parents kids whoever you want to be entitled to such investments in case god forbid you pass away fourth pay attention to the various costs that are associated with investing some of these can

Be one entry load it is the cost which is paid when you invest into the mutual fund second exit load it is the cost which is paid when you exit from the fund that is when you redeem your money third can be costs associated with setting up direct debit or one-time mandate for your bank also costs that are attracted in case your bank account has insufficient balance

And so on usually these costs are pretty low but nevertheless you should be aware of these also when you calculate return-on-investment do not forget to include such costs in your computation v if you have an irregular income flow be careful about planning your monthly amount of investments see what fits your pockets and budgets and review it more often for obvious

Reasons the rule of investing at least 10% of your net income however is still very relevant and there’s no escaping that so that’s pretty much it to systematic investment planning they are indeed wonderful yet simple instruments to help you achieve your investment goals if you find this video helpful show your support by sharing and subscribing to the channel it

Will be much appreciated i will see you in the next video until then work smart and invest even smarter peace you

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Systematic Investment Planning (S.I.P)- The Ultimate Guide (Setting up, Process, Advantages & Tips) By The State Of Finance