Systematic Investment Plan (SIP) is a very common question asked by the investors new to mutual funds.
It is a method of investing a fixed amount, regularly – weekly, monthly or quarterly in a mutual fund scheme. SIP allows investors to buy units of the selected mutual fund scheme on a date and frequency chosen by them. SIP investments can be made through post-dated cheques or through ECS (auto-debit) facility.
With SIPs, you can invest an amount as small as Rs 500 per month for a chosen period of time. It helps you in averaging out your cost of investments and benefit from the power of compounding. The power of compounding works best when you stay invested over a long time period which may help your money earn return over the years.
This is investment amount
This is Growth value
This is maturity amount?
SIP online calculators work based on the following methodology:- Click Here
Today with the advent of digital platforms, investors may find it easy to open a SIP account online compared to the traditional way of investing by filling up an application form. In fact, you can open SIP account online from the comfort of your home. Please note that to open SIP online, KYC is a mandatory requirement. To be KYC compliant, your address proof, and PAN Card etc.Read More
Systematic Investment Plans, or SIPs as they are popularly called, have caught the fancy of investors in recent years. Average monthly net flow into the investment vehicle has ballooned from Rs 3,122 crore as of April 2016, when the Association of Mutual Funds in India began disclosing the data, to Rs 8,513 crore as of February 2020.Read More
Good investment advisors are increasingly endeavouring that their investors do not make random investments in mutual funds and instead map these with their various financial goals. Most Indian investors do not have a structured approach to savings and investments. Most people do not have saving targets as the amount of money they save depends on their spending habits.Read More
Most of us make investments with a single-minded focus on maximizing returns. This often leads to investment mistakes like trying to time the market. Fear and greed become the driving forces so that when markets turn volatile, investors tend to pull out their money or they typically increase their investments when the markets are already over-heated. This results in ill-planned and directionless investing.Read More
Systematic Investment Plans (SIPs) offered by mutual funds need no introduction. They are quite popular among retail investors - a convenient way to invest regularly. But often, inertia sets in and SIPs do not mirror the rise in income. The industry's new feature Top-up takes care of just that.Read More
It is taxed in a first in first out (FIFO) method. This means that if you redeem part of your SIP investments, the earliest instalments are redeemed first and the later instalments are redeemed later. For instance, if you made 36 monthly instalments and you want to redeem part of the investments, your initial instalments (first, second, third and so on) are redeemed first.
This means that in order to qualify for long-term capital gains, each of your instalments in the invested corpus must complete at least one year (in case of equity or equity oriented schemes). For equity or equity oriented schemes, long-term gains (those made over one year) over Rs 1 lakh in a financial year is taxed at 10 per cent and short-term gains are taxed at 15 per cent.
Yes, you can save taxes under Section 80C of the Income Tax Act 1961 if your systematic investments are in ELSS mutual fund schemes. You can invest upto Rs 150,000 in a year for claiming deductions under Section 80C of The Income Tax Act 1961.
You can invest online directly through AMC website. As a new investor, there is a one-time documentation, called KYC (know your customer), which you need to complete. If you have a PAN Card, an Aadhaar card and online-banking facility, then you can start mutual fund systematic investments online immediately after fulfilling the KYC formalities online.
The other way is to contact a mutual fund distributor. The distributor will help you with the entire procedure and this is convenient for a first-time investor.
The whole idea of Systematic investing is that you should be consistent with your investments. When you step up your investments for a limited period, then that is not consistency. You should continue your step-up SIP investments as long as you can. This not only helps you invest more as your income grows up annually but you may also get a higher corpus at the end of the investment tenure.
Your distributor may not be right always as there could be circumstances in which you may have to stop your investments. One, you realise that you have chosen a wrong fund category or a non-performing scheme. Two, due to certain emergency situation you are not able to continue the investments for some period. Three, you may stop your systematic investments in equity funds as you get closer to your financial goals and switch to low risk debt funds. There could be some more unavoidable circumstances in which you may have to stop your Systematic Investments.
Yes, you can cancel your on-going Systematic Investments even if the period chosen is ‘till cancellation’ by writing to the AMC. The AMC generally takes two weeks to implement your SIP cancellation request.
No, there is no upper limit for Systematic investments. You can invest as much as you want. Due to compounding factor, big investments can lead to large wealth creation. Therefore, big amount is rather a very good option.
Systematic Investment Plan is a mutual fund investment plan where an investor can invest a fixed amount in a mutual fund scheme of his / her choice at a fixed frequency which can be weekly, fortnightly, monthly or quarterly. The bank ECS mandate/auto debit instruction ensures that the amount gets automatically debited on the chosen date and frequency from the investor’s bank account and invested in the chosen mutual fund scheme. The number of units so purchased depends on the Net Asset Value (NAV) of the scheme on the investment date. The systematic investment tenure can either be fixed or perpetual (Investor can choose the option ‘Until cancelled’. However, the investor can cancel the investment anytime by writing to the AMC. AMCs normally takes around 15 days’ time from the date of request made by the investor to stop the investments.
In Systematic Investment Plan, there is less risk of timing because investors buy units at different price points (both, at high and low NAVs). This is known as rupee cost averaging of purchase price and is especially effective in investment in equities as equity as an asset is volatile. Rupee cost averaging usually lowers the cost of acquisition during bear markets and aims to give superior returns in the long term.
Under Systematic Investment Plan you benefit from the power of compounding, which is nothing but interest earned on interest or profits earned on profits. The biggest advantage of mutual fund systematic investment plans is that, it is possible to create wealth with relatively small regular investments over a long investment tenure through the power of compounding. The table below shows a scenario analysis of the corpus built over different investment tenures and amount (assumption - 12% XIRR)
|Monthly SIP amount||₹3,000||₹5,000||₹7,000||₹10,000||₹20,000||₹50,000|
|SIP Tenure (in years)||30||25||20||15||10||5|
|Corpus Accumulated (₹ lakhs)||₹ 104.85||₹ 93.94||₹ 69.25||₹ 49.96||₹ 46.01||₹ 40.83|
The above is for illustration purposes only.
As per SEBI regulations, you need to be KYC compliant to invest in schemes of Mutual Fund through Systematic Investment Plans. You can now complete KYC requirements online through our website by complete Aadhaar based Paperless e-KYC process. Click here. You can fulfil KYC requirements by submitting filled in KYC form with your self-attested photograph affixed on the KYC form, to the AMC or the concerned RTA (different AMCs have different RTAs). The KYC form can also be downloaded from the AMC website. Along with the duly filled-in KYC form, you also need to submit self- attested copies of your identity and address proof (For example - it can be Aadhar Card or Passport or Driving License etc.) along with PAN card copy.
If you are submitting the KYC documents directly to the AMC or RTA, in person verification (IPV) will be required. For IPV, you will have to carry original documents of ID, address proof and PAN card. AMFI registered mutual fund distributors are also authorized to conduct IPV. Through a mutual fund distributor, the IPV can be conducted at your place. You can also do a Video KYC by visiting the AMC website which are offering this facility – This is a completely paperless process and helpful if you want to do SIP investment online.
If you are an existing mutual fund investor, you are likely to have fulfilled all KYC requirements. Therefore, you need not follow the process mentioned above and can start SIP investment online or through a mutual fund distributor immediately.
Bank account is a mandatory requirement for starting systematic investments. You have to provide your bank account details in the application form as well as in the auto debit mandate form commonly known as SIP registration form. A cancelled cheque of the mentioned bank account with your name printed on it is required as a supporting document.
In the application form you need to mention the scheme name in which you want to start the investment. Along with the scheme name you also have to mention the scheme option – growth or dividend and whether you want to invest in regular plan (through a mutual fund distributor) or in direct plan (directly with the AMC). If you are investing in a regular plan, the AMFI Registration Number (ARN) and EUIN number (Employee Unique Identification number) of the distributor has to be provided. If you are investing in regular plans, the distributor is expected to help you with filling out the application form and submission to the AMC
Any date SIP – This method allows you to select a scheme, its frequency and the amount. You have to mention the start date and end date of investment on the application form. Based on your mandate, the AMC will deduct the amount on the specific date and allot units to you. The systematic investment will continue till the end date chosen by you. You can continue your SIP account even after the investments have stopped and redeem whenever you want.
Perpetual SIP – Perpetual SIP or systematic investment plan is similar to Any Date SIP, the only difference is that there is no end date. While filling up the Systematic Investment Plan form, if you choose end period as ‘perpetual’, it will continue until you request the AMC to stop it. Once it is stopped by you, the AMC will stop deducting the instalment amount from your bank account. Post the SIP is cancelled, the units may continue to grow and you can redeem them whenever you want.
Top up SIP – Top up SIP allows you to increase the instalment amount at certain intervals, say – annually. You can top-up the instalment amount by a certain percentage in the chosen frequency. For example – your investment SIP frequency is monthly, amount is Rs 5,000, top up percentage is 10% and you want to increase it annually. In the first year, the AMC will deduct Rs 5,000 per month, in the second year Rs 5,500 per month and in the third year Rs 6,050 and so on.
This facility helps you invest more and create larger corpus in the long run.
Disciplined investing – By choosing to invest at regular frequency, you bring discipline to your SIP investments as it is treated like any other fixed expenses in a month, be it paying rent, children’s school fee, buying household goods, going out during the weekend etc. Through disciplined investing, you stop worrying about how much to invest and when.
Wide range of schemes to choose from - You get a whole range of schemes to choose from – different funds from debt, equity and hybrid category – you can choose the one which suits your investment objective and risk appetite.
Convenient and easy to monitor – To start, all you have to do is fill up and sign the SIP application form along with the auto debit / ECS mandate form and the amount will be deducted from your bank account on the chosen date every month. You can also start Systematic investment plan online by visiting the AMC website without involving any paperwork. Progress of your systematic investments can be monitored through the account statements sent periodically by the AMC or alternatively you can login to the AMC website to check the investments details.
Low investment amount - You can start an SIP or Systematic investment plan with as low as Rs. 500 per month.
Investment diversification - Starting systematic investments in an equity/ hybrid mutual fund helps you diversify your investment risk as you invest in various sectors and companies.
Helps achieve long term goals - Systematic investment plan may help in achieving your long-term goals, like - Retirement, Children education, buying a house and wealth creation etc. You can start systematic investments by setting a target amount for the goal and investing monthly over the goal time period.
For example – You are aged 30 and want to build a corpus of Rs 5 Crores for retirement at age 55. Accordingly, you need to invest Rs 27,900 monthly for the next 25 years (assuming you get 12% return on your investments).
Tax Savings - By investing systematically in ELSS schemes, you can save taxes under Section 80C of The Income Tax Act 1961 on your investments upto Rs 150,000 in a financial year.
Rupee cost averaging - A simple approach to long term investing is discipline and commitment to invest a fixed sum regularly for a fixed time period and sticking to the schedule regardless of the market conditions. Rupee cost averaging in a way ensures that you buy more units when the units prices (NAV) are low and fewer units when the unit prices are high. Suppose you are investing Rs 5,000 every month. When the NAV is Rs 25, you will get 200 units (Rs 5000/25 = 200. However, if the market corrects and the NAV drops to 22, you will get 227.272 units (Rs 5,000/22 = 227.272). As you can see, you bought more units when the markets corrected.