October 12, 2022
A SIP is a Systematic Investment Plan, which is offered by the mutual funds to its investors so
that they can invest in
a disciplined manner. In this plan the investors invest a small amount of money at regular intervals, the
intervals can
be as long as a few weeks, a few months, or semi-annually or annually. The fixed amount of money can be as low
as Rs.
500.
SIP has been gaining popularity among Indian Mutual Fund investors, as they do not have to worry about market
volatility
and timing the market.
Stocks:
Benefits of SIP investing:
1. One of the benefits of SIP is that it brings financial discipline to your life and a predefined amount of
money gets
invested automatically without any effort.
2. With SIP, investors do not have to worry about the dynamics of the market.
3. With investments over time, the investor would get more units when the market is low and fewer units when
the market
is high. This averages out the purchase cost of your mutual fund units. This in turn maximises the results.
4. Due to point number 3, the returns will increase and the money will start compounding. This as a result
will help the
investors achieve their long-term financial goals.
5. For first-time investors, it is one of the ways to invest for a long time with returns.
6. By investing in open-ended funds one can easily withdraw the money whenever required.
TYPES OF SIPS:
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1. Regular SIP:
A Regular Systematic Investment Plan is the most basic plan, requiring clients to invest in Mutual Funds
regularly,
which can be monthly, bi-monthly, quarterly, or semi-annually. When signing up for this plan, the investor
specifies the
amount, frequency, and interval. However, once the sum is determined, it cannot be modified.
This strategy is appropriate for novices or anybody who is willing to invest a predetermined amount of money
in mutual
funds at regular intervals and is confident in their future investment returns.
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2. Top-Up SIP:
As the portfolio value increases, investors can increase theirs periodically. It is also known as set-up
SIP.
This type of SIP is suitable for individuals with salary jobs or the ones that have just started working as
it allows
them to gradually increment the money contribution along with their salary hike.
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3. Flexible SIP:
This type of SIP lets the investor increase or decrease their investment on demand. Investors can increase
their
contribution when the markets are performing well and decrease it when the markets are falling. This gives
them greater
control over their investments.
Individuals who are prone to financial issues or do not have a steady income source such as vegetable
vendors, shop
owners, start-up entrepreneurs, etc. can benefit from this type of SIP as it provides the flexibility to
lower or
increase the amount depending on the investor’s current financial situation.
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4. Perpetual SIP:
This does not have a fixed investment period. In simple terms, this SIP will continue until the investor
keeps
contributing money at regular intervals. It can only be ceased when the investor provides a stop instruction
to the fund
house.
This type of SIP investment is suitable for individuals who want to invest as long as they require and then
redeem their
investments whenever they require them.
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5. Multi SIP:
This type of Systematic Investment Plan is suitable for those investors who make multiple investments in
different funds
for a single investment goal. Here, the investors can give a single form and payment instructions to start
their SIP.
This reduces the paperwork and also helps in diversifying the portfolio of the investors.
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6. SIP + insurance:
If an investor opts for long-duration investments then some asset management companies offer her or his
insurance
coverage. Insurance doesn’t affect the performance of the fund and is just an add-on feature.
This plan is only available to equity mutual fund holders.
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7. Trigger SIP:
In the Trigger Systematic Investment Plan, if favorable market movements, an index level, or even a NAV
level occurs
then only the investor can invest in mutual funds.
For instance, an investor could set up a trigger SIP to start investing only if the index level of a mutual
fund falls
above a particular level.
It is advised that only individuals with a good enough understanding of the stock market use this plan as it
requires
knowledge and awareness about the dynamics of the stock market.
These days almost everything can be done online, and the same applies to SIP investment, just from the comfort
of their
home investors can start contributing to whichever SIP plan they prefer. Also, one may have heard of the
mutual fund
advertisement on television, “Mutual funds are subject to market risk…”. To avoid any big risks, one should
take care of
the following steps in mind.
Steps to start investment Mutual Funds SIP:
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1. Set financial goals:
Before investing, it is very important to be clear about the end goal(s) as it helps in proper planning to
avoid any
financial and understanding issues later during the plan as inflation causes the value of money to change.
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2. Divide the main goal into subgoals:
Now with the idea of the main goal clear in the head, one should divide it into
subgoals with different durations to analyze the time the investments have to grow.
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3. Determine how much risk one can take:
This is one of the crucial points to consider before starting investing in any
plan. The different SIP plans can be categorized into Low, moderately low, moderate, moderately high, and
high risk.
Therefore, it is vital to analyze how much risk one can take before starting a SIP in a mutual fund.
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4. Seek advice from a certified professional:
Before starting investing it is very important to consult a seasoned
professional who has ample knowledge about the stock market as their advice and knowledge would help in
taking informed
decisions and choosing the plan which is suitable to an individual or a group of individuals.