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Understanding SIP
Systematic Investment Plan or SIP is a mode of investing money in mutual funds. The other way to invest in a lump sum or a one-time payment.
In SIP, a fixed amount of money is invested in a mutual fund of your choice every month. The set up is such that the money is automatically debited from your bank account to know what amount of monthly SIP you need to invest to achieve a certain money goal.
SIP investment is a strategy to invest a certain amount of money at regular intervals of time. Investing in this makes it easy for investors to buy equity mutual fund or debt mutual fund regularly on a particular date of the month, in order to build substantial wealth quickly.
Systematic investment plans are the smartest and most convenient way of investing in mutual funds. Best SIP mutual fund plans help create a planned approach towards investment and develop the habit of savings in investors so that they can create wealth to achieve their financial goals in the short and long-term.
What is SIP in a nutshell: It is a smart, or rather hassle-free, mode of investing money in mutual funds, where you are allowed to contribute a pre-determined sum of money on a weekly, monthly, or quarterly basis.
SIP mutual funds are flexible in nature, thus, investors can choose to decrease or increase the amount of investment, or stop investing in the plan whenever they want. It is the safest and best choice of investment for beginners and for those who are not well-versed in the mechanism of the financial market.
Types of SIP plans
Systematic Investment Plans are of 4 types and a short description of each of these is given below:
- Top-up SIP: This type allows you to increase your investment amount periodically. This also means that you can make the most of your SIP mutual fund investment by contributing to well-performing mutual fund schemes at certain intervals. When your income increases, you can increase your investment amount.
- Flexible SIP: This type allows you to increase as well as decrease your investment amount as per the cash flow you have. This way you can skip one or more payments when you face cash trouble due to any reason. Likewise, you can make a bigger contribution to your SIP account when you receive a bonus or an additional income.
- Perpetual SIP: Systematic investment plans are, generally, for a fixed period of 1 year, 3 years, or 5 years. A SIP mutual fund is referred to as Perpetual SIP if you do not mention the end date in the mandate date. These SIP types allow you to redeem your funds whenever required or, particularly, when you have achieved your financial goals. However, it is advisable to set an end date for your SIP contribution so as to build a disciplined, goal-based investment.
- Trigger SIP: This type is ideal for investors with limited knowledge of the financial market. You are allowed to set NAV, index level, SIP start date or event, etc. Since this SIP mutual fund type encourages speculation, it is not desirable or much recommended.
Why invest in SIP?
There are some benefits of SIP which describes why it is chosen-
- Convenience-You can invest in a disciplined and phased manner using this. It allows you the convenience of starting your investment with as low as Rs 500.
- Rupee Cost Averaging-No need to time the market. Buy more units when markets are low. This reduces your overall cost of investment.
- Power of Compounding-Compound interest ensures better long-term benefits compared to a one-time investment.
- Disciplined Saving-By investing through it, you commit to saving regularly, and every investment takes you a step closer to reaching your financial objectives.
Way to invest in SIP plans
Following steps must be followed while investing in mutual funds via SIP:-
- Set Investment Goals-Every mutual fund has a specific goal and purpose. You need to choose one that suits your requirements. Let us know your financial goals and income details and we will handpick the plans for you.
- Choose-Make an informed decision based on your individual needs and choose a Systematic Investment Plan mutual fund you want to invest in. You can also delegate this task to our team.
- KYC-All our mutual fund investments mandate KYC documentation and a net banking account. We offer the e-KYC option to upload all the documents online from the comfort off your home or office. There is usually no need to sign cheques and fill out forms.
Benefits of investing in mutual funds via SIP
There are several benefits of investing in Mutual Fund via SIPs i.e. a fixed amount every month:
- Easier to save and invest: It is easier to save small amounts of money regularly than a big amount in one go. And create wealth using small investment.
- Stock markets are volatile: Some months they are high and some months they are low. So investing each month averages out the purchase price.
- Discipline: Saving and investing every month instils discipline in the investor to stick to a plan in spite of market ups and downs.
- Fewer decisions: You don’t have to decide every month how much to invest and which funds to invest in.
How Do Mutual Funds Work?
Mutual funds have a simple process for their working. As an investor, you invest in a mutual fund company which is also collecting similar investments from other individuals as well. The fund thus created is managed by finance professionals with extensive experience and knowledge of the financial market. The aim of the fund management is to achieve growth through strategic investments. Based on the amount you invest, you will get units of the mutual fund and the Asset Management Company will manage your investment by investing in various schemes that are operated by the mutual fund. The mutual fund house also provides services like financial consulting, advisory, customer service, marketing, accounting and sales functions, etc. for the schemes.
How SIP works?
SIP is a method of investing a fixed sum, regularly, in a mutual fund scheme. SIP allows one to buy units on a given date each month so that one can implement a saving plan for themselves. The biggest advantage of SIP is that one need not time the market. In timing the market, one can miss the larger rally and may stay out while markets were doing well or may enter at the wrong time when either valuation has peaked or markets are on the verge of declining. Rather than timing the market, investing every month will ensure that one is invested at the high and the low, and make the best out of an opportunity that could be tough to predict in advance.
An investor can invest a pre-determined fixed amount in a scheme every month or quarterly, depending on his convenience through post-dated cheques or through ECS (auto-debit) facility. Investors need to fill up an Application form and SIP mandate form on which they need to indicate their choice for the SIP date (on which the amount will be invested). Subsequent SIPs will be auto-debited through a standing instruction given or post-dated cheques. The forms and cheques can be submitted to the office of the Mutual Fund / Investor Service. Centre or nearest service centre of the Registrar & Transfer Agent. The amount is invested at the closing NAV (Net Asset Value) of the date of realization of the cheque.
The secret to achieving Much More with SIP
- List down your dreams and goals and work out a plan to achieve them through SIP
- Ascertain the monthly/quarterly SIP required to achieve your goals
- Identify the scheme(s) in which you would like to invest and complete the formalities for SIP investment including forms and cheques
- Invest for the long term as the twin benefits of a power of compounding and rupee-cost averaging work through different market cycles
- Diversify your investments for your dreams through multiple SIP’s in different schemes to optimize returns as per your needs.
How to Choose a SIP plan?
Here are a few points which describe how to choose SIP:-
- Value of Asset Under Management-Higher AUM of a fund indicates that maximum investors have preferred this fund. This doesn’t mean that funds with low Corpus are bad.
- Duration of SIP-The duration of SIP mutual fund is an important factor from a risk, return and tax point of view. Keep 5 years reference point and check how the fund performed across markets.
- Fund House-Reputation of the SIP fund house is an important factor while choosing a plan as it tells how well they were able to handle market highs and lows without letting their investors feel the impact.
Conclusion
In conclusion, SIPs offer a great way for retail investors to save money for the long term. While the returns generated over the long term against lump sum investments may be better also (may not be also!), however, they still remain a great tool to save money and reduce the risk of investing.
We wish you luck for your safe investment, you can visit our website WealthBucket for best experts advise. Or give us a call at +91 9999379929 or email us at contact@wealthbucket.in. Let us guide you to reap the benefits Debt Mutual fund, Large Cap Mutual fund or Multi-Cap Mutual fund, to achieve your objectives.
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