Published: Jul 1, 2024
Investing wisely is essential for long-term financial security, and Systematic Investment Plans (SIP) have emerged as a preferred option for disciplined investors in Nepal. Understanding how SIP works can empower you to make informed decisions and grow your wealth through mutual funds in Nepal. This blog breaks down the frontend and backend processes of SIPs, highlighting why they are a smart choice for dynamic investment strategies.
SIPs are designed for convenience and simplicity, making them accessible for investors with varying financial goals. Here’s a step-by-step breakdown:
Select a Fixed Investment Amount: Start with as little as NPR 1,000, aligning your investment with your financial capacity.
Decide on Investment Frequency: Choose to invest monthly, quarterly, semi-annually, or annually based on your preferences.
Automated or Manual Payments: Automate deductions from your bank account or make manual payments via platforms like eSewa, Khalti, or ConnectIPS.
Investment in Mutual Fund Schemes: Funds are directed into open-ended schemes, such as Kumari Sunaulo Lagani Yojana (KSLY), pooling resources for diversified investments.
Buying Units Based on NAV: The invested amount purchases units at the current Net Asset Value (NAV):
High NAV means fewer units.
Low NAV allows purchasing more units.
Steady Growth Over Time: As the mutual fund’s performance improves, your accumulated units increase in value.
Flexibility: SIPs offer options to adjust, pause, or stop contributions and redeem units when needed.
Real-Time Monitoring: Track your investments online or through Demat accounts like Meroshare for transparency.
While the frontend provides simplicity, the backend operations ensure your investments are strategically managed:
Pooling Funds: Contributions from all investors are aggregated into a single, large fund.
Expert Management: A professional fund manager invests in various financial instruments, including:
Equities: IPOs, secondary markets, and rights issues.
Fixed Income Securities: Debentures and fixed deposits.
Diversification: Even a small investment of NPR 1,000 diversifies your portfolio across multiple asset classes, mitigating risks.
Performance of Underlying Assets: The returns depend on market factors and the expertise of the fund manager.
Distribution of Returns:
Cash Dividends: Direct payouts to investors.
Reinvestment: Earnings are reinvested, purchasing additional units to enhance growth.
SIPs combine automated investing with professional management, making them a robust tool for wealth creation. By leveraging cost averaging, compounding returns, and diversification, SIPs offer significant advantages over traditional saving methods.
