Systematic Investment Plan or SIP is not an asset class or an investment instrument. It is, in reality, one of the methods of investing in mutual funds. This is where regular investment with a fixed sum of money is made in a disciplined manner.
The other method of investing in mutual funds is a one-time lump-sum investment.
SIP helps you invest a fixed sum of money regularly in various mutual funds schemes depending on your financial goals. You have the potential to create long-term wealth, by investing a small sum of money through SIP.
The SIP investment approach suit people with regular cash flow or a fixed salary.
For example – You want to build a fund of Rs. 5.4 Lakhs in 3 years for foreign travel trip. By starting a monthly SIP investment for Rs. 15,000, you can achieve the goal conveniently.
SIP is the best way to get into the habit of saving and investing regularly. Apart from that, if you start SIP early you have a longer investment horizon to avail benefits of the power of compounding.
Additionally, a SIP investment avoids timing the market. SIP investment is least affected by the market conditions due to rupee cost averaging. When the markets are high, you purchase a fewer number of units as compared to the down market.
SIP helps you start a mutual fund investment with a smaller amount in comparison to a lump-sum where you need a larger sum of money for investment.
You can start an SIP for an amount as small as Rs. 500 per month. As your income grows , you can increase the SIP amount.
SIP investment is done at regular intervals. You have the flexibility to choose the investment cycle, be it, weekly, monthly or quarterly. A regular investment approach makes you disciplined in savings and investments.
The regular investment is a better option for investors as compared to a one-time single investment. Your investment is spread over time and you benefit from rupee cost averaging.
The investment amount is fixed when starting a SIP. However, you can use the “SIP-Top Up option” offered by various mutual fund houses to make an additional contribution.
SIP amount cannot be decreased. You need to cancel the existing SIP and start afresh if you want SIP investment for a lower amount.
You can ‘pause’ the SIP investment for a temporary period of one month to three months. Which is useful if you face financial crunch.
The SIP does not stop during ‘pause’. It starts automatically at the end of the pause period. You need to check with your mutual fund house for the pause facility.
SIP provides you the flexibility in changing your investment intervals into weekly, monthly, or quarterly SIPs.
You can make an online or a written request to change your existing SIP interval.
The minimum amount of SIP investment is Rs. 500. SIP gives you the benefit of investing a smaller amount.
On the other side, there is no restriction for the maximum amount for SIP investment. You can choose to invest Rs. 1000, ten thousand, lakhs or even a higher amount using SIP.
As an investor, you have the flexibility to invest any sum of money through SIP investment.
But make sure that you have the fixed SIP amount on a regular basis for the period of the SIP.
SIP investment comes with the option to cancel. If you want to stop your SIP investment or cancel for any reason, then you can do so by logging into your account online and opting for canceling the SIP anytime.
The offline method would require you to fill the SIP cancel form and submit to the mutual fund house.
Additionally, you can remove the AMC as a biller from your bank account.
With SIP you have to invest a particular sum of money at regular intervals. That brings financial discipline where you first allocate money for savings and investing for future expenses.
This means that you are getting financially disciplined and are consciously planning for the financial needs for the coming days. Being disciplined, helps you make logical decisions and make prudent investments.
SIP brings convenience while investing, in a sense, you can choose any amount of Rs. 500 or more depending on your cash flows.
Additionally, the SIP investment process is automated. Once set, you do not require to worry at every investment interval.
A fixed SIP amount gets deducted from your bank account and gets deposited to the mutual fund house for purchasing units. The mutual fund units get credited in your mutual fund’s account.
When the markets are low the same SIP amount can purchase a higher number of units. In higher market cycles you get lower units.
Overall, the investor is least affected by the market using SIP as compared to a lump-sum investment. Because lump-sum investment could be at a high or low price but in SIP the cost is spread over a period and you get an average purchase price.
Using SIP you are purchasing a smaller number of mutual fund units every month. Thus helping you to invest in a phased manner over a period of time.
Keep the following factors in mind while doing investing through SIP:
You have the flexibility to choose the SIP investment amount. You can start SIP with a minimum amount of Rs. 500.
Pick any amount depending on your monthly income (cash flows) and the investment objective. For example, if you are in a position to save and invest Rs. 5,000 monthly for purchasing your dream car then do that.
If your investment objective is tax savings then you can do an SIP of Rs. 12,500 per month to get Rs. 1.5 Lakhs tax deduction under section 80C of the Income Tax Act.
There is no upper limit for the SIP amount.
The frequency of SIP investment is usually weekly, monthly or quarterly. SIP frequency selection depends entirely on you.
Analyze your cash flows to know when you receive money. For example, the salaried person gets a monthly income. For him, a monthly SIP frequency is best.
The best way is to choose a SIP frequency is to pick a period that is aligned with your cash flows.
The SIP tenure can be one year, three, five or ten years until your investment objective is fulfilled. In case of open-ended mutual funds, you can even have a perpetual SIP that will continue forever until you stop it.
Hence, there is no fixed tenure, you can keep on investing until your financial goal (investment objective) is achieved.
SIP is not an investment instrument. The SIP objective is the same as the investment objective of the mutual fund.
For example, if you are investing through SIP in Equity mutual funds to build a corpus for retirement, then your SIP purpose is for retirement.
Likewise, if you are investing in Debt mutual funds having an investment objective of providing liquidity (goal – emergency funds). Then your SIP purpose is creating emergency funds.
The process to invest in SIP is as under;
SIP investment starts with choosing the right mutual fund scheme that matches your, financial/ life goals, and investment tenure.
You can take the help of a financial expert to understand and choose a better mutual fund scheme aligned to your financial goals.
The two ways to invest in mutual fund schemes are;
A. Online Method
Once you are on the website, you need to create an account by following simple steps. The steps may differ from platform to platform.
You can open a Demat account with stockbroking houses.
You have to provide bank details and upload scanned copy of canceled cheque and KYC documents before you proceed with SIP investment.
B. Offline Method
You can visit the local mutual fund office or take the help of your agent for investing offline.
You will get the application form to start an SIP investment.
Here you would also submit a canceled cheque, bank account details, auto-debit form (ECS mandate) and KYC documents to start SIP investment.
In the case of an online application, after creating an account and selecting the plan you will be prompted for SIP investment or one-time lump-sum investment.
You need to indicate your SIP investment option in the application form while applying offline.
In any of the methods, make sure that you have checked/opted for the SIP investment.
In the final step, you need to make a payment to make SIP investment.
After receiving money, the mutual fund house will purchase and allot mutual fund units. The units will reflect by the end of the day in your mutual fund account.
You can use Scripbox’s online mutual fund platform for SIP investments. This online platform is a simple, quick and hassle-free way of making an SIP investment in different mutual fund schemes.
Step-by-step process using SIP to invest in mutual funds through Scripbox:
Step 1 – Visit Scripbox and Begin Your Investment Journey
Visit the Scripbox website and click on “Let’s get started” button. You will see options for your investment objectives based on your life goals.
You can pick any of the options, which is close to your financial goals.
For example, you can select the option “Start a SIP” for investing in a mutual fund.
Step 2. Create a Plan
Next, you need to create a plan by providing information like investment amount and the period of investment.
The example shows a SIP investment amount of Rs. 1000 for a period of 10 years.
Here you will be prompted for either “Long Term Wealth” or “Short Term Money” option.
The long-term option invests in best equity mutual funds and has the potential to generate a higher return.
The short-term option invests in best debt mutual funds that are safe and provides nominal returns.
You can choose any one option.
For example, when you select the “Short Term Money” option you will get the investment details in the next step.
Step 3. Get Investment Details
Here you will find details of the basket of the best mutual funds suitable for your investment needs. Click on “Continue” to proceed for investment.
Step 4. Create an Account and Proceed for Investment
If you are a first time user, then you need to create an account. The account can be created easily through anl email ID and password.
You also have the option to open an account using your Facebook or Google account.
After login, you can click on the plan details. Which will open the page, as above, where you can choose between SIP and one-time lump-sum payment.
Step 5. Bank Details and Money Transfer
At the last step, you add information of your bank account and PAN details.
The account will be used for investment and crediting the redemption amount by the mutual fund houses directly in your specified bank account.
SIP is a powerful yet convenient method that has the potential to create a long-term wealth corpus. You benefit from rupee cost averaging and phased investments.
The SIP approach gives the flexibility to choose a lower amount, pause or cancel your investment as per your requirements. Additionally, the method helps you build a systematic approach to savings and investment.
Let us know in the comments, if you need additional information related to SIP investment.
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