A FIVE-MINUTE GUIDE TO SIP OR SYSTEMATIC INVESTMENT PLAN

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Systematic Investment Plan (SIP) is a godsend investment avenue to those investors who are looking for to multiply their wealth in a systematic and efficient matter. Owing to demonization and marketing efforts by the Government of India, mutual funds and SIP have gained immense popularity in the recent past. Today, almost all fund houses and Asset Management Companies (AMC) offer SIP investments to investors. If you wish to recall about SIP, this article aims to serve as a five-minute investment guide in SIPs.

What is SIP?

SIP is an investment tool that allows investors to invest in mutual funds. Note that, SIP is not a financial product in itself. Hence, you do not invest in SIP, rather invest in mutual funds via SIP. Under SIP investment, periodic investments are made towards desired mutual fund schemes. An investor has the flexibility to determine their SIP investment amount, investment tenure, and periodicity of the investments.

Types of SIP

SIPs are very flexible in nature. There are 4 types of SIP available to an investor. You can choose any type of SIP basis your needs.

1. Vanilla SIP – This is a normal type of SIP. Under this mode, an investor invests a fixed sum of money in their desired mutual fund scheme for a fixed and predetermined period of time.
2. Top-up SIP – Also known as step-up SIP, top-up SIPs allow you to increase your SIP investment amount at fixed intervals. You can top-up your SIP investments by a fixed number or a percentage, whichever suits you.
3. Trigger SIP – Under this type of SIP, a trigger amount is set for your investments. SIP investments stop once the NAV (Net Asset Value) of the scheme falls below a certain level.
4. Perpetual SIP – Under this type of SIP, there is no end date. This type of investment tends to run forever unless a written application is submitted to the fund house to stop the SIP.

Benefits of SIP      

Following are some of the advantages of SIP investment:

1. SIP investments inculcate financial discipline among retail investors
2. There is no maximum amount to invest in SIP
3. An investor can invest as low as Rs 100 in mutual funds via SIP mode of investment
4. SIP helps to average out the cost of mutual fund units. This investment concept is known as rupee cost averaging
5. SIP ensure that you invest in mutual funds regularly while keeping your emotions at bay
6. SIP helps to benefit from the power of compounding and achieve significant returns when invested for a prolonged duration
7. SIP investments make sure that an investor does not have to time the markets. Timing the markets is a frowned upon concept by financial advisors and mutual fund experts.

Now that you have understood the basics of SIP investment, get right on to it. Remember, the earlier you begin with your SIP investment, more would you able to benefit from the power of compounding. Investors also have the option to evaluate the future value of their mutual fund investments. An SIP calculator will help you do the same. Happy investing!