Jerry Mononela-Basics Of SIP
                     Basics Of SIP
Jerry Mononela, South Africa
● I Jerry Mononela and sharing with you basics of SIP. SIPs or 
systematic investment plans are becoming the most popular things 
in the investment market these days. 
● All brokerage firms as well as some mobile investment applications, 
something that we talked about in the previous post, are offering 
SIPs to their user base.
● We all have heard the amazing stuff about SIPs in the ads, but they 
give very little information on what SIPs are. So in today’s blog post, 
I will be guiding you through the basics of a SIP.
What is SIP?
● First things first, an SIP is a Systematic Investment Plan. And according to its 
name, it is a structure that is designed to systematically invest funds taken 
from your account either over multiple ventures or concentrated towards 
one. 
● A systematic investment plan can take funds from an account set up in your 
name and it can be a mutual fund, trading account, or a retirement account. 
● You would have to transfer funds into such accounts over a fixed period that 
is decided by you. The returns from such accounts would be small but 
accumulate into a large sum across a long period. 
● That is the selling point of a SIP.
How do SIP’s Help me?
● Well, just like any investment plans, there are no guarantees when 
it comes to SIPs, though SIPs are considered less risky than other 
investments as they give you a return by accumulating small profits 
over a long time. 
● That is the selling point of a SIP. They are much safer than other 
investment options and don’t require a hands-on approach. They 
are helpful for people who want to invest small amounts of money 
regularly and have the assurance of a return after a significant 
period. 
How do SIP’s Work?
● Systematic Investment plans work actually on a very simple 
concept that is hoohaa by financial advisors. The concept is called 
DCA or Dollar Cost Averaging. 
● DCA means that an investor buys a stock at a fixed amount 
regardless of the actual market value. That enables the investor to 
buy stock either at a profit when prices are up or for a loss when 
prices are down.
● SIPs are different from regular investments as investors continue to 
pay funds to their mutual fund or trading account through all the 
ups and downs instead of cashing out when the stock is highly 
valued or cashing in when the stock is low valued.
● SIPs work in the favour of the investor as the market is often frisky. 
● The stock value goes up and down quite regularly. So instead of 
solely focusing on cashing in and out, a regular person can get a SIP 
and see a significant return in the future by paying small, regular 
amounts of money continuously. 
● SIPs get the investor a return in small amounts in exchange for a 
fixed investment that results in a huge sum after a long period. 
● Put in simple words, that is how SIPs work.
What are the Benefits of SIP’s
● If I am being honest here, SIPs are the best option for any person 
who doesn’t have that much knowledge of investing and wants to 
invest a comparatively small amount with a much lower risk. And 
that is what SIPs provide you.
● They take in very little capital. That means that there is no hurry or 
tension to get in funds for your investment account. For SIPs, you 
just have to ensure that your funding account has enough money to 
make the monthly or weekly payment that has to go out.
● They have a fixed capital. In SIPs, you fix a capital at the start of the 
term. And that is the amount that will be taken out of your funding 
account till the SIP gets over. This helps in not worrying much about 
how your stock is performing as you would only see a significant 
change in the future.
● They reduce investments. SIPs on average save a lot of money for 
the investor. Since they are comparatively a safer form of 
investment and work with fewer funds, SIPs increase the return per 
investment ratio for you.
What are the Disadvantages of SIP’s
● SIPs are great for a newbie who is looking to invest his monthly 
savings safely, but they do have a lot of predicaments that might 
get in the way of future investments.
● SIPs require long term funding. That means if you have a SIP you 
have to keep investing until the fixed term for that SIP is over. This 
leaves less flexibility for other investment plans.
● They have heavy penalties for early withdrawals. Since SIPs work 
systematically for a long period, early withdrawal from such plans is 
often carried out with hefty fines. 
● So SIPs have the benefit of low risk and high return after a long 
time, but you have to be committed throughout.
Are SIP’s worth it?
● To be honest, SIPs are a great option for a person who does not have too 
much knowledge about the stock market but wants to have a try at 
investments anyway. SIPs are a great option for that as they are very low risk 
and high returning.
● The only catch is that in a SIP the investor has to be committed over the long 
term. So if you can handle funding small amounts of money over a long 
course and are a newbie in the field of investment, then SIPs are a great 
option for you.
● Different brokerage firms have different SIPs and I would recommend 
checking all of them out and comparing them lucratively. Choose the one 
that suits you the most and then go for it. SIPs turn out great for the majority.
About Me!!!!!
● Jerry Mononela is an accountant who offers financial advice in and 
around the city of Tshwane. If you liked this blog check out more 
down below and follow us on our socials! 
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● Visit: http://jerrymononela.co.za/
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