Analysis of Systematic Investment Plan (SIP) in Share Market

In the current economic scenario, simply earning money is not sufficient to build financial stability. Investing earned money in the right places is crucial. The concept of the "share market" in Nepal often raises concerns such as "Is it too risky?" or "Will I lose money?", which can deter many individuals. Amidst these risks, one option that has been introduced is the Systematic Investment Plan (SIP). SIP refers to a structured investment plan, offering a modern approach to investing in collective investment schemes. Investors in SIP can allocate a certain amount of money monthly, quarterly, semi-annually, or annually based on their convenience. This money is then invested by skilled fund managers in various company shares and securities in the market. Another significant investment option in the field is the Unit Linked Insurance Plan (ULIP). In simple terms, ULIP is a financial product that combines life insurance and investment benefits in a single plan. Investors allocate a portion of their premium towards life insurance, while the remaining is invested in the share market or securities. The full-fledged implementation of Unit Linked Insurance Plan (ULIP) in Nepal is yet to happen officially, but the Insurance Regulatory Authority of Nepal has prepared its legal foundation based on the Capital Adequacy and Solvency Directive 2082. With the current political changes in the country, there is an expectation that the government will soon enforce this through insurance companies. In contrast, in India, this plan has been popular for many years, with the regulatory body Insurance Regulatory and Development Authority of India (IRDAI) imposing strict regulations. From an economic perspective, the primary goal of investing is to outperform inflation. Inflation causes the value of goods and services to increase, reducing the purchasing power of money over time. If the return on your investments is lower than the rate of inflation, your money's real value may be decreasing. SIP has the capacity to generate high returns over the long term by beating inflation, benefiting from the growth of the share market, which generally outpaces the rate of inflation. Therefore, active investing is often considered wiser than passive saving. According to the general principle of investment, risk and return have a direct relationship. SIPs based on shares carry a higher risk but also offer the potential for higher long-term returns. On the other hand, SIPs based on securities have lower risks, resulting in relatively lower returns in a comparative sense. Therefore, investors need to assess their risk tolerance and capacity to make informed decisions on the right plan to choose.