Systematic Investment Plan (SIP): Make Money While You Sleep

Are you looking for a hassle-free investment option that can help you make money while you sleep? Look no further than a Systematic Investment Plan (SIP). SIP is a simple and effective investment tool that can help you grow your wealth over time with regular investments. In this article, we will discuss what a SIP is, how it works, its benefits, and tips to maximize your returns.

Table of Contents

1. Introduction
2. What is a Systematic Investment Plan (SIP)?
3. How does a SIP work?
4. Benefits of investing in SIP
   • Convenience
   • Disciplined approach to investing
   • Cost-effective
   • Higher returns over the long term
5. How to maximize your returns with SIP
   • Choose the right fund
   • Stay invested for the long term
   • Invest regularly
   • Avoid timing the market
6. SIP vs. Lump Sum investment
7. Risks associated with SIP
8. How nvestment period matters
9. Conclusion

1. Introduction

Investing your hard-earned money is a crucial decision, and with so many investment options available in the market, it can be overwhelming to choose the right one. However, if you are looking for a simple, convenient, and disciplined way to invest in mutual funds, then a Systematic Investment Plan (SIP) can be an excellent option for you. It is a method of investing a fixed amount at regular intervals in mutual funds.

2. What is a Systematic Investment Plan (SIP)?

A Systematic Investment Plan (SIP) is a method of investing money in mutual funds regularly. It allows investors to invest a fixed amount at regular intervals, such as monthly, quarterly, or annually. The invested amount is used to purchase units of mutual funds, and the investor gets a specific number of units based on the prevailing Net Asset Value (NAV) of the fund on the date of investment.

3. How does a SIP work?

When you invest in a SIP, you need to choose the amount you want to invest and the frequency of investment. The amount is deducted from your bank account automatically and invested in the mutual fund scheme of your choice. The investment is made at the prevailing NAV of the fund on the date of investment. The fund manager then invests the money in various securities such as stocks, bonds, and money market instruments, based on the investment objective of the fund.

4. Benefits of investing in SIP

• Convenience
  Investing in SIP is easy and convenient. You can start investing with as little as Rs. 500 per month, and you can choose the frequency of investment based on your convenience.
• Disciplined approach to investing
  SIP helps you inculcate a disciplined approach to investing. Since the investment is automated, you do not need to worry about market fluctuations or timing your investment.
• Cost-effective
  SIPs are cost-effective as the mutual fund houses charge a lower fee for SIP investments compared to lump sum investments. Additionally, you can also benefit from the power of compounding over the long term.
• Higher returns over the long term
  SIPs help you invest regularly, which leads to rupee cost averaging. It means that you buy more units when the market is down and fewer units when the market is up. This helps you average the cost of investment over time, resulting in higher returns over the long term.

5. How to maximize your returns with SIP

• Choose the right fund
  Choosing the right mutual fund is crucial for maximizing your returns. You should consider various factors such as the fund’s investment objective, historical performance, fund manager’s track record, and expense ratio before making your investment decision.
• Stay invested for the long term
  Investing in SIP requires patience and a long-term perspective. Staying invested for a longer duration can help you ride through the market fluctuations and benefit from the power of compounding.
• Invest regularly
  Investing regularly is the key to success in SIP. You should make investments at regular intervals, irrespective of the market conditions, to benefit from rupee cost averaging.
• Avoid timing the market
  Trying to time the market can be a risky proposition, and it is not advisable for SIP investors. Instead, you should focus on your investment goals, choose the right fund, and invest regularly.

6. SIP vs. Lump Sum investment

SIP and lump sum investments are two different investment methods. While SIP allows investors to invest a fixed amount at regular intervals, lump sum investment requires investing a lump sum amount at one go. SIPs are suitable for investors who want to invest a small amount regularly and benefit from the power of compounding, whereas lump sum investments are suitable for investors who have a significant amount of money to invest.

7. Risks associated with SIP

Investing in mutual funds through SIPs involves market risks, and the value of your investments can fluctuate based on the performance of the underlying securities. However, the risks can be mitigated by choosing the right fund, investing regularly, and staying invested for the long term.

8. How nvestment period matters

Let’s assume you start investing in a mutual fund with a SIP of BDT 5000 per month for 10 years. The fund offers an average annual return of 12%. Here’s how your investment will grow over the years:

• After 1 year: Total investment of BDT 60,000, with a return of 12%, your investment will grow to BDT 67,200.
• After 5 years: Total investment of BDT 3,00,000, with a return of 12%, your investment will grow to BDT 4,08,232.
• After 10 years: Total investment of BDT 6,00,000, with a return of 12%, your investment will grow to BDT 10,05,018.

Now, let’s assume you decide to extend your investment for another 5 years, making a total investment period of 15 years. Here’s how your investment will grow:

• After 15 years: Total investment of BDT 9,00,000, with a return of 12%, your investment will grow to BDT 20,38,117.

As you can see, by extending your investment period from 10 to 15 years, your total investment increased from BDT 6,00,000 to BDT 9,00,000, but your investment value increased significantly from BDT 10,05,018 to BDT 20,38,117. This shows that by increasing the investment period, the power of compounding works in your favor and can result in higher returns.

It’s important to note that these calculations are based on assumptions and past performance is not indicative of future results. However, this example shows the potential benefits of investing in a Systematic Investment Plan for a longer period.

9. Conclusion

In conclusion, Systematic Investment Plan (SIP) is a simple, convenient, and disciplined way to invest in mutual funds. It allows investors to invest a fixed amount at regular intervals and benefit from the power of compounding over the long term. However, it is essential to choose the right fund, invest regularly, and stay invested for the long term to maximize your returns.