In recent times, Halal SIP has become a topic of discussion. One of the reasons SIP has gained momentum is the flexibility it offers by allowing investors to start investing with a small amount of money, which could be as low as Rs 100. Before we start any SIP investment, let’s deep-dive into understanding SIP as well as its Shariah perspective.
What is SIP?
A Systematic Investment Plan, or SIP, is a disciplined approach to investing, generally in mutual funds, by investing a fixed amount of money according to one’s will at fixed intervals for a longer duration of time. In the absence of Shariah-compliant mutual Funds, SIP can be done in individual stocks or a basket of stocks that are expected to deliver decent profits in the future.
Is SIP Halal?
Halal SIP is simply an investment method where, instead of a lump sum amount, a small amount of money is invested in a regular interval of time for a longer duration. The only criterion is to invest in Sharia-compliant stocks. If someone invests in non-compliant stocks, his investment will not align with Shariah principles.
Who Will Get The Benefits of SIP?
It benefits small investors who cannot invest a lump sum of money in stocks. For big investors, this method of investing helps spread investments over a large span of time so that a sufficient quantity of the desired stocks is accumulated to reap the benefits at a later stage.
What is the minimum investment required for SIP?
The minimum investment is the unit price of a share selected for investment. The flexibility it provides by allowing a very small amount to start investing has made it ideal for small investors who invest small amounts from their savings.
What is the ideal frequency for SIP?
There is no ideal frequency. One can invest according to one’s choice of period. Generally, people invest the amount from their monthly savings. Some people use Technical Analysis to do SIP when the stock price rises above certain key levels.
Can SIP be done with any stock?
No, proper study and then selection of a fundamentally strong stock are essential conditions for investing. Before this, the stock must pass the Shariah screening criteria. Investors are advised to learn the art of investing and consult investment advisors before investing.
Is SIP Suitable For The Short Term?
It all depends on an individual’s choice. It is generally observed that longer-duration SIPs are more beneficial and fruitful. An investment plan requires longer-duration investments. A disciplined investor is expected to reap many more benefits than a short-term trader.
Is compounding possible with SIP?
Yes, the real benefit of SIP is the compounding effect it brings. A disciplined approach to investment leads to an increase in corpus with each passing year. The SIP Calculator available in the IslamicStock app may be used to see the compounding effect of SIP.
The systematic investment method makes an individual a disciplined investor. An additional benefit is that it keeps the investor relatively calm in the volatile market, as the investor always has time to average down the stock selected based on a growth theme. SIPs are generally advertised with a mutual fund. Still, in the absence of any Shariah-compliant mutual fund, SIPs in individual or a basket of stocks can be done to reap the same benefit as Mutual Funds and Diversification.
FAQ
Is SIP halal in Islam?
Yes, a Systematic Investment Plan (SIP) can be halal, but it depends on the stocks in which you invest. If the stocks are Sharia-compliant, then your SIP is halal; if not, it is not Sharia-compliant.