By Ronni Peel
Investments can be defined as allocating a portion of your monthly income to an investment scheme. Investments are undertaken with the aim of earning extra income. The said purpose behind earning extra income is to take care of day-to-day expenditures after retirement. When you opt for retirement, you bid goodbye to the monthly income. So, retirement is a very important decision and before opting for it, you need to check your savings. To earn extra income, you need to invest a portion of your income while you are a part of the job market. There are two different options when it comes to investment plans. One is depositing your money every month in a bank account. The other is to invest a portion of your income in the market.
One of the options for market investment is mutual funds. A prominent investment option, these schemes also come with different variants. So, to sign up for these schemes, there are two different modes of investment. One mode of investment is a lump-sum investment. In this mode, you need to make a one-time payment for investing in mutual fund schemes. So, before signing up for lump-sum, you should check in case you have the required amount of investment at your hand. In case, you don’t have money, you need to hassle for arranging for funds. Simply put, there is no flexibility in lump-sum payments. You must pay the stipulated amount whether you have it or not. That’s why lump-sum mode can be stressful in case your savings are not that high.
The other mode of investment is a systematic investment plan or SIP. Through these plans, you can opt to make monthly payments. With the help of these plans, you can invest at different times such as once a quarter or even (and the most common example being) once a month. However, in case you are signing up for a systematic investment plan, it is imperative for you to remember that you should have a long-term goal and, therefore. Moreover, to make most of the power of compounding, it is better if you were to start as soon as possible. For paying for the mutual fund scheme, with a request to the bank, you can sign up for automatic deductions of a fixed amount from your bank account at regular intervals. Through this feature, the payment for mutual fund investments goes through smoothly even if you ever forgot the date.
Are there any advantages of SIPs?
Listed below are some of the advantages that are associated with signing up for systematic investment plans:
- These plans are convenient:
Unlike lump-sum investments, in SIPs, you can allocate funds in a disciplined and phased manner. This feature gives you the convenience of starting your investment journey at a low investment amount.
- These plans offer higher returns over other Investment options:
Mutual funds come with the potential of offering much higher returns than other options such as bank accounts and PPF. Combine this feature with the power of compounding offered by SIPs and you will enjoy high returns in your investment journey.
- These plans offer the benefit of compounding:
As stated earlier, these plans come with the benefit of compounding. When investments are made in mutual funds regularly with the help of SIPs, the income generated through the scheme gets reinvested. As time passes, the action of investing and re-investing results in a snowball effect, thereby increasing your income manifold. You can make the most of this feature by choosing to invest for an extended period.
When does SIP mature?
Systematic investment plans are an investment mode and not an investment scheme. It is investment schemes that usually come with an investment tenure and not a mode of investment. So, simply put, SIP does not come with a maturity period.
