These COVID-stricken years have proved the importance of holding onto personalized savings. When it gets tough, you better hope you’ve got money saved to use it to your advantage. Saving money doesn’t happen overnight. It takes time and commitment on your part. But, once you develop the habit of saving, you’ll find that little by little, your savings will build up. This means the smaller sums start adding to one another and transforming into a significant amount over time. In this blog, we will look at the best plans and benefits of SIP investment in the UAE.

What Is SIP Investment?

Investing for a better future is something everyone aims to achieve. The easiest way to start doing this is with recurring investments that are done regularly. The timing doesn’t matter as much as the amount you invest. And when it comes to investing your hard-earned money safely, there’s no better option than mutual funds.

The term systematic investment plan, also known as SIP, refers to a method of depositing money in various schemes of mutual funds with a predefined frequency and systematic manner. It’s similar to making recurring deposits into a bank. However, the only distinction here is that your investments will be in mutual funds rather than the banks. So, you have to accept that the risk involved isn’t as low as RD accounts but is still relatively low. SIP plans are subject to market risk but still have many perks that make them worth trying out. Often these schemes offer tax benefits as well!  

SIP allows for a constant, long-term approach to building wealth. This investment vehicle is designed to help investors reach financial success in the long run. SIP works within a simple rule— invest a specific amount of money at regular intervals into the SIP fund. Investors can set their preferred frequency of investing. It can be done on a monthly, yearly, or even on a daily basis. Through SIP, you can attain financial success by taking small steps that lead to big goals!

Types Of SIP Investment in UAE

Top-up SIP

This SIP type helps you to grow the amount of money that you invest regularly. In fact, because your invested amount grows, the longer you leave it untouched and the more time it has to grow, the more money you’ll have in your retirement fund when the time comes. And with increasing income levels and raises, you also have more cash to contribute periodically as well! The best part about this particular SIP option is that it’s flexible enough for all income types.

Flexible SIP

They are a great way to grow or reduce your investment based on the amount of money you have. If you suddenly find yourself with more cash than usual, you can use that money to bolster your portfolio. Likewise, if you lose some earnings due to revenue shortfalls or other reasons, you can cut down on the next few payments or skip them altogether.

Perpetual SIP

SIPs can work towards progressive financial goals effectively, but many investors opt for the ease of exit. The formal structure is SIP investments are applicable for a period of one year, three years, or five years. SIP investment is also referred to as a perpetual plan if you have not mentioned the end date of your contribution or have left an open-ended mandate at the time of signing up. This type of investment allows you to access your funds whenever needed. However, it would be prudent to not overuse this option and set an end date.

Trigger SIP

This feature is ideal for those investors who want a bit more control over their assets. It is also good for those who may be more familiar with financial markets and indices. Trigger SIPs are also used for speculation, which does not necessarily make them favored by financial advisors, who would rather work closely with clients to ensure that an investment strategy is sustainable in the long run instead of risky investments that don’t guarantee income generation.

Is SIP A Safe Way To Invest?

SIP is a very reliable way of investing in mutual funds without necessarily having to “time the market”. This makes it a strategy that requires a lot less expertise or knowledge when compared to other investment options. 

Although one should always keep up with what’s going on in the market, as soon as you’ve decided to invest your money via SIP, there’s no need to worry about short-term fluctuations on any given day which may either drive prices up or down at the hour. This is because by spreading out an investment over time and paying deposits regularly, the value one will end up paying will be an average of high and low values depending on how things unfold.

If you consider the long-term perspective as an investor, you can avoid paying overpriced fees for buying a mutual fund every month.

Benefits Of SIP Investment In UAE

SIPs are a great way to invest in mutual funds. They are very easy to set up and are a great way to grow your money over time. They also come with a lot of benefits that you might not see till you invest in them. Let’s look at a few of them

Easy on the pocket

Factors like working a full-time job and other financial obligations can make it difficult to set money aside for investments. That’s why SIPs are advantageous when you’re a working professional who might not have the ability to put money toward a stock investment outright at one time. When you invest through this method, you make an installment toward your share over time. It is a better method than contributing all at once, in a lump sum.

Manages the market’s unpredictable nature

A good SIP can help you even out the market’s highs and lows. That said, it is unwise to time the market because of its inherent volatility. Instead, you must understand that timing the market cannot work in your favor. So, all you have to do is focus on investing and growing your wealth slow and steadily. You can do this by choosing a mutual fund with a strong track record that aligns with your investment style.

Uses the power of compounding

SIPs help you instill a good habit of regular investing. This investment can be compounded over time. This allows your funds to gain better returns when compared to investing unusually which is normally done as lump sums. This is especially helpful considering the market’s usual ups and downs.

Great tool for financial planning

All investors have their own goals for the wealth they want to create. Their goals could be short-term, medium-term, or long-term. The path to achieving such goals lies in proper planning and setting aside funds for savings. A lot of investors invest in the equity market to support their short-term objectives. To invest your money correctly, we recommend opting for SIP investment for those who want to take advantage of their investments whether it be for short or long-term purposes. The earlier you start investing, the more returns you will see in your future!

Aids in financial discipline

An SIP can be a great way for individuals in UAE to start saving money. With SIPs, new and seasoned investors can develop a habit of saving money. They can do this without constantly having to watch or time the market.

Anytime liquidity

Compared to other types of investments, SIP units are very liquid. They can be sold at any time. In this way, they can function as an “emergency fund”. This means that they can act as a last resort or an alternative to additional loans. The ability to liquidate your investment easily though may cost you as you will receive fewer returns.

Setting aside a percentage of your paycheck can be a great way to save up for what you need. With systematic investments, you’re able to set aside the same amount of money each month for some time. So, the gains you get from this investment are more than worth it. If you have an unstable income where you might sometimes have more money than other times, this is not the most ideal form of investment.

When you have multiple possible income streams— both, long-term and short-term investments may make sense. However, some financial experts might advise you to invest in SIP when you have less stable income streams. This is because it can help instill financial discipline if you spend too much every now and then!

It is wise to discuss the pros and cons of SIP investments with a financial advisor. They will be able to assist you with the right plan that aligns with your financial goals.

(Also read: 10 Reasons Why You Should Hire A Financial Advisor)

Best SIP Investment In UAE

Exchange Traded Funds or ETFs

ETFs work on the philosophy of passive investing in which the fund manager does not highly involve himself in the decision of choosing stocks. They are linked to indexes such as S&P 500 and Sensex. When you invest in equity exchange-traded funds, you may either want to use a lump sum or set up a systematic investment plan (SIP). SIP is convenient, safe, and ideal for long-term goals.

S&P 500

The S&P 500 is widely regarded as a benchmark of the stock market in the United States. The S&P is composed of five hundred companies from different sectors to reflect the market conditions at any given moment. As an index, it reflects the market rather than individual companies and its movements are usually representative of how actively traded stocks fare on Wall Street. Since investors cannot invest directly in an index as they do with individual stocks, an alternate tool has been created to offer exposure to their performance – this is what we refer to as index funds. These are considered an ideal investment for those who are looking for low-risk investments with decent returns.

SIP Investment Calculator

The SIP investment calculator is a time-saving tool. It not only allows you to calculate the returns on your investment but also helps you to manage your finances. The SIP calculator online is quite helpful for investors who may want to increase their future investments and thus earnings.

The genius of a SIP investment calculator is that it provides potential investors the ability to calculate their investment returns without having yet actually begun investing. This allows them to forecast more smoothly in terms of what sort of returns they might anticipate, taking under consideration any investment incentives or bonuses that may be included with their plans as well.

Top 3 SIP Investment Mistakes To Avoid

With the recent surge in popularity of SIPs, one has to understand the key components involved in investing in them. As these require monthly installments, it is important to understand the investment risks and returns associated with such a property. In this section, let’s try to understand the mistakes in SIP investments you should avoid.

Having unrealistic expectations

A common mistake that most investors make is setting unrealistic or unattainable goals for their SIP. Investors often want to retire before they should, for example. They should consider establishing a realistic goal based on their income and investment goals and find ways to achieve them. The key is to have an achievable result. This way you don’t become discouraged by setbacks or any other related events that would stand in your way.

Investing in equity SIPs for shorter durations

Investors who wish to stay invested for a long time should consider purchasing equities. Investments that involve a short-term horizon might be better served by investment vehicles such as liquid funds, or shorter duration instruments of lower-risk participation to ensure the stability of returns.

Backing out during market volatility

Sticking to a long-term equity fund strategy works best when investing a set amount and staying invested over time. However, sometimes even the most dedicated investors can’t stick to their investment plan in the face of market fluctuations. They may withdraw funds from the market when they feel there might be a downturn which will negatively affect their investment. It’s understandable since it’s human nature to not want to lose all of your invested money. However, it helps to keep in mind that markets fluctuate. There are always opportunities for growth once the downward movement has stabilized.

Closing Thoughts

Setting up a SIP investment in UAE is a smart way to make regular investments. It saves you the stress of deciding when to invest. It also ensures that your mutual fund investments are relatively safe. 

Having a financial advisor handhold you in setting up an asset allocation based on your goals and investing horizon can help you reach financial freedom sooner. They can also take care of things such as tax rebalancing for passive income investors.

Consult our financial advice experts to know more about SIP investment in UAE and other reliable ways to reach your financial goals.

About Khalid Shamim

Khalid Shamim has been in the financial industry since 2004. He believes his previous tenure with ABN AMRO Bank, Dubai and UAM (Universal Asset Management), Geneva were an ideal foundation for his work as a wealth manager.

Qualified to CISI (Chartered Institute of Securities & Investments), UK and always ready to help expats align their investments and create wealth through Structured Notes.