A quick guide to SIP or Systematic Investment Plan

A quick guide to SIP or Systematic Investment Plan

The prevalence of SIPs or Systematic Investment Plans has gone up in the last few times. Amfi's Mutual Fund Sahi Hai operation also helped to popularise the concept of SIP and mutual funds. However, many investors, including those who have previously made SIP investments in mutual funds, are often worried about SIPs.

Many investors think that a SIP is a product or a mutual fund system. It is not unusual to come across a query - can I invest in a SIP to achieve my goal? Or someone assuming I am investing in a SIP.

A SIP is not equivalent to a mutual fund scheme. A SIP is an insignificant instrument that helps you to invest systematically in mutual fund schemes, typically in equity mutual fund schemes. A SIP benefits you to stagger your investments in equity mutual fund schemes over a period.

Most utmost mutual fund advisors do not recommend investing a lumpsum in equity mutual funds. They understand that staggering investments over a period, depending on the quantum of capital, is a better way to invest in equity mutual funds and withdraw catching the market at a certain level. Also, it is a beneficial tool for salaried investors to automatically invest in mutual funds.

Here’s a swift guide to SIPs and how you can use them to advance in equity mutual fund schemes to create wealth over a long period to accomplish your long-term financial goals.

What is a SIP?

A SIP allows an investor to invest a fixed amount annually in a mutual fund scheme, typically an equity mutual fund system.

Why should you invest through a SIP?

One, it allows financial discipline to your life. Two, it encourages you to invest regularly without wrestling with market mood, index level, etc. For instance, if you are supposed to put a fixed amount every month in a mutual fund system, you need to find time to do it. When you hold the time, you might be worried about market conditions and think of suspending your investments. Or you might be thinking of spending more if the mood is optimistic. SIP puts an end to all these circumstances. The money is automatically invested frequently in a scheme without any effort on your part.

What are the other advantages of SIPs?

SIPs help you to average your investment cost and maximize returns. When you invest regularly over a period irrespective of the market circumstances, you would get more units when the market is low and fewer units when the market is high. This standard out the purchase cost of your mutual fund units.

Another advantage, called the eighth wonder of the world by some, is the power of compounding. When you advance over a long period and earn returns on the returns earned by your investment, your money would start intensifying. This helps you to build a large corpus that help you to accomplish your long-term financial goals with regular small investments.

How much money do I need to start a SIP?

You can start spending in most mutual fund schemes via SIP with a minimum of Rs 500.

Can I customize the SIP?

Yes, you could. Though the most popular SIP is investing a fixed product every month, investors can customize the way they put money via SIPs. Many fund organizations allow investors to invest monthly, bi-monthly, and fortnightly, according to their availability.

Apart from this, Step-up SIPs enable investors to increase the SIP amount annually. ‘Alert SIP’ is another form of the regular systematic purchase plan which sends an alert to the investor to buy more when the markets are falling.

 In the case of the ‘perpetual SIPs,’ investors don't have to keep the end date of the SIP. Once the goal is reached, the investors can stop the SIP by addressing a written communication to the fund house.