Investment is an important move for every individual in this fast-paced world. Where inflation is volatile and savings account interest rates are minimal, investment in equity, bond, or commodity markets is necessary to meet future demands and save individual currency from losing its value.
What is SIP?
In case of investment, there are various terms that define the investment journey, the most popular among those is the Systematic Investment Plan (SIP). An SIP is not an investment product itself, but rather a method of investing in mutual funds.
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As it goes with the name, it allows an investor to invest a fixed amount of money at specific intervals, typically weekly, monthly, or quarterly, into a chosen mutual fund scheme. Instead of trying to “time the market” by investing a lump sum at the correct time, SIP makes the process easier by auto-debiting the given amount at the chosen time, which also brings up a habit of disciplined investing.
What is an optimal SIP duration?
Soumik Banerjee, Founder & Financial Advisor at The Market Catalyst (Financial Consulting Firm), said in a statement, “SIP is a systematic investment plan and one of the best ways to invest. The duration of a SIP depends on the investor's goal amount, expected rate of return, and monthly SIP amount. A higher SIP amount requires fewer years, while a lower SIP amount requires a longer tenure. SIPs generally need at least 10 years to provide good returns and activate the power of compounding. The longer the investment time, the more active the power of compounding becomes.”
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“Investment decisions should be goal-based, determining the required amount and tenure first. When selecting a mutual fund, ensure it is actively managed. Analyse the assets (stocks) the fund holds and plans to hold. Check the fund's PE ratio, Sharpe ratio, and category average,” he added.
{News Ei Samay does not provide investment advice anywhere. Investment and trading in the share market or any field involve risk. Proper study and expert advice are recommended beforehand. This news is published for educational and awareness purposes.}
