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A Five-Minute Guide to the Systematic Investment Plan Research Team | Posted On Saturday, June 29,2019, 05:54 PM

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A Five-Minute Guide to the Systematic Investment Plan



What is SIP?

Systematic investment plan or SIP is a way of investing in your favorite mutual fund scheme. It is a good investment avenue for investors who seek to accomplish long-term saving goals, along with wealth generation.

The SIP allows payments to be made on a monthly, quarterly or annual basis, as per the convenience of the investor. The investment amount is generally auto-debited from the bank account and invested in the mutual fund via SIPs.

SIPs also offer flexibility to the investor, as you can discontinue the plan anytime, if you don’t have the funds.

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A Five-Minute Guide to the Systematic Investment Plan

Why Should You Opt for SIPs?

Investing in SIP has several benefits. It helps save regularly and inculcates financial discipline. It is a comprehensive way to invest in your favorite mutual funds. You can start SIPs with just Rs 500 a month. The fourth benefit of investing in SIPs is the compounding benefit.

See Also: Difference Between SIP and Mutual Fund

What are the Types of SIPs?

There are for types of SIP investments available in the market:

  • Top-up SIP: This type of SIP offers the flexibility to increase investment amounts at regular intervals. The investors also get the benefit of investing in the top performing mutual funds using top-up SIP. Increasing the investment amount when income rises, helps the investor accumulate a huge corpus at maturity.
  • Perpetual SIP: In this type of scheme, the investors can invest in their favorite mutual funds for a pre-determined time period. The investor can enter the end date of the scheme. If the end date is not mentioned, it is considered a perpetual SIP. This allows the investors the option to accumulate a sizeable corpus and achieve financial goals.
  • Flexible SIP: The flexible SIP offers the investor the option to increase or decrease regular contributions according to their cash flow. The SIP enables investors decrease SIP installments, when facing a cash-crunch or increase installments, when they receive a bonus. So, the flexible SIP is an ideal option for investors who invest for the long-term. In this way they can continue on a regular basis, without having to miss payments due to a cash crunch.
  • Trigger SIP: A trigger SIP is beneficial for investors who have good knowledge on the financial markets and are aware of the market fluctuations. To start investing in this type of SIP, the investor must set index levels, NAV and a fixed date to start the SIP. However, it is advisable to avoid these SIPs, if you do not have proper knowledge on them.

See Also: How To Start SIP Investment?

What are the Other Benefits of SIPs?

The other benefits of SIPs are listed below:

  • SIPs help maximize your returns with an average investment amount. When you invest regularly, you are able to buy more mutual fund units, when the markets are low. This reduces overall cost of investment.
  • You are able to generate inflation-beating returns at a faster rate than traditional investment options.
  • The SIP helps become a disciplined investor and manage personal finances, successfully. With the auto-debit facility, you hardly miss monthly payments.
  • Compounding helps money grow at a rapid pace.  This means the interest accrued over a period, gets added to the principal amount and the new principal amount then starts accruing interest at the current interest rates. This helps accumulate a large corpus over a longer tenure, by investing a moderate amount.

See Also: Systematic Investment Planning

Can I Customize My SIP?

Yes, you can customize your SIP as per convenience. You can make payments either monthly, quarterly or annually. You can also customize the payment amounts by choosing a particular type of SIP.

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