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Systematic Investment Plan (SIP)

Sunday, April 23rd, 2017 Amritesh 3 responses

Systematic Investment Plans
Systematic Investment Plan (SIP) is an intelligent way to plan your investments in mutual funds in order to minimize risk and maximize your returns. In SIP, one can make periodic investments at their convenience (i.e Weekly, Monthly, Quarterly). SIP enables you to invest a pre determined sum at periodic interval. Thus the savings you make translates into investments which leads to maximization of your wealth. You can start investing with a minimum of Rs 500/- and saves individuals of the burden of making lumpsum investments. Individuals may invest in SIP with or without the Demat account as per their choice, one may also visit their  respective Bank Branch to submit the required KYC documents and start with the Investment.
Read about different types of Mutual Fund Investment in the link provided below. 
Types of Mutual Funds
 
How does it function?
 
This is a very easy and flexible investment plan as one has the option to enable automated transfer to the SIP funds from the respective Bank account. This helps to auto debit the determined amount to the Fund on the assigned date and again auto transfer of the Investment at the time of redemption of the fund. The allocation of the units in your Fund is based on the prevailing market value which means the Net Asset Value (NAV). With the shifts in the market scenarios the NAV of the Funds is also impacted and thus the Unit allocation may also differ during the vesting period. If the market is outperforming the NAV may go up as well, which impacts the quantum of units purchased and vice versa. However as the investment is spread out over a period of time and is diversified into various sectors, the fund generally averages out to provide decent returns. Thereby, it is able to make the most of underperforming market by adding more units to the Folio whereas; while improved market scenarios provide better valuation.
 
Features of SIP which makes it attractive Investment option:
 
Ease of Investment: Since the minimum amount which can be invested is as low as Rs 500/- (no upper limit) it is easy for anyone to invest in this scheme and accumulate handsome return over a period of time.
Better Returns: Over the years it has been seen that the return on investment is one of the best in mutual funds and it is really a good investment option as far as wealth maximization is concerned. Since it is market linked it performs well over longer duration and return is better than other fixed return investment products which provide very modest returns.
 
Power of Compounding at Work: This is one of the most important features of any investment. The compounded rate of return is something which financially helps us to attain magical figures which otherwise would not have been possible.However, do remember that this is a market linked so your investment does not earn any compound interest.
Let’s understand with an example:
Suppose you have started investing on your 30th birthday with a sum of Rs 1000/- on a monthly basis and you continue with your investment till the age of 60 then it means your principal amount invested stands at Rs 3,60,000/-. Now suppose you earn an modest return @ 8% p.a on the Principal even then the investment will grow handsomely to Rs 15,00,000/- at the time of redemption.
 
Inculcate Saving Habit: Since you have to make periodic investments you will plan your finances better and develop the habit to save which would be very beneficial for future plans and management of personal funds.
 
Flexible Investment: SIP makes investment very flexible as there is no point of entry and no compulsion of exiting from the investment. You are also free to increase or decrease your investment as and when you feel the need to do so.
It is a very good investment option of all classes and each one can reap good returns on investment. I will soon be posting the Top ELSS to Invest in the Financial Year 2017-18.
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Amritesh is an experienced professional in the field of HR, Finance and Compliance. He is currently working in the IT Industry with an US based firm. He took up Blogging as a hobby which eventually turned into passion. He primarily focuses on topics related to Personal Finance, HR, Compliance and Technology.
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3 Comments on "Systematic Investment Plan (SIP)"

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Bala Abay
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Very informative blog! Systematic Investment Plan is an option where you invest a fixed amount in a mutual fund scheme at regular intervals. For example, you can invest 1,000 in a mutual fund every month. It is a disciplined investment plan and helps reduce propensity to market fluctuations. It is a convenient tool that helps you preserve capital and also render significant wealth creation in the long-run.

Prateek
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Thanks for the informative post. To add to that SIPs can also help to save tax under ELSS schemes which often proves more prudent than the conventional tax saving plans http://www.sipinvest.in/invest_knowledge/elss_mutual_funds_tax_saving.php

Aruna Vamsi
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SIP investments helps in the prevention of pitfalls of equity investments! Clear information about SIP investment!

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