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What is Systematic Investment Plan (SIP)

What is Systematic Investment Plan (SIP)

‘The best time to plant a tree was 20 years ago, the second best time is now’, is a Chinese saying which describes SIP the best. Systematic Investment Plan (SIP) is a scheme which allows you to invest a fixed amount of money at regular period in any of the mutual fund schemes of your choice. A fixed amount is deducted from your bank’s savings account every month or quarter (as instructed) and invested in the mutual fund you have chosen for a long term.

Benefits of investing in SIP

With SIP, you invest in small amount and harvest big returns. It’s a simple and convenient way to track your investments. It also brings financial discipline.

  • Convenience- You can invest in a periodic process with discipline using SIP. It is so convenient that you can start your investment with as low as Rs 500.
  • Rupee Cost Averaging- You don’t need to follow the market rigidly. More units can be bought when markets are low which will reduce your overall cost of investment.
  • Power of Compounding- As SIP functions on the grounds of compounding, the compound interest ensures better long-term benefits compared to one-time investment
  • Twice the returns than on a RD- As compared to the conventional fixed deposits.
  • Earlier the SIP begins, more the returns – The earlier one starts saving and investing regularly, the easier it is to achieve your goals.

Why invest through SIP

SIP focuses on saving first and spending later!

  • With SIP, you can invest small amounts at fixed intervals which can be weekly, monthly or quarterly, instead of going for a one-time investment.
  • Power of Compounding- The basic principle of Compound interest signifies that investment of even small amounts for a long period of time would result in a larger return compared to a one-time investment.
  • Start even with a low amount- You can start investing with amount as low as Rs 500 which will not burden your budget then gradually increase your monthly installment.
  • Averaging of cost- As the equity market is volatile, the SIP investment funds buy more number of units during a slump market and less units in a blooming market which results in decreasing out the cost per unit.
  • Become disciplined with your investing- An SIP investment makes you more disciplined in managing your finances. With the option of automated debits from your account, you don’t have to remember every month.
  • Can also work as an Emergency Fund- The facility of immediate withdrawal also let the SIPs to act as an emergency fund for any possible contingencies.

How to Choose a SIP

You can check on the internet about all the mutual funds including their past returns. Before selecting, keep in mind certain basics for a good return-

  • Bench mark the assets you invest in- A 500 Crore asset size company can be a sensible benchmark when selecting to invest in a fund. Though funds below this Corpus are not bad, but it is not advisable.
  • Time scale of SIP- The term of SIP mutual fund is important from the risk, return and tax point of view. Keeping a 5 yrs reference, check the fund performance across the markets.
  • Reliable Fund House- Reputation of the SIP fund house is also important when choosing a plan, as it portrays their handling of the highs and lows of the markets without impacting the investors

How to Invest in SIP

  • Specify your Investment Goals- Every mutual fund has a specific purpose and you should choose that best suits your requirements.
  • Research- Explore and analyse before making decision based on your individual needs before investing for the Systematic Investment Plan mutual fund.
  • Up to date KYC and Net baking – For all mutual fund investments KYC documentation and a netbanking account is mandatory.

SIP has gained popularity as it helps in investing in a disciplined manner without worrying about market volatility and timing for long term.


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