SIP stands for Systematic Investment Plans. It is a method of investing in Mutual Funds in a systematic, disciplined and regular manner. Simply speaking, SIP is similar to a Recurring Deposit. Through SIP, a pre-determined amount of your money is deployed into mutual funds at regular intervals (weekly, monthly, quarterly, and so on).
Every day, month, quarter or year, depending upon the intervals you choose, a predetermined fixed amount is debited from your bank account and invested in mutual funds. It encourages regular saving and investing, which results in wealth creation over the long-term.
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Over the years, Mutual Fund houses have introduced new features to SIPs. Currently, there are 5 types of SIPs:
Step-up SIPs are also called top-up SIPs. This type of SIP enables an investor to increase SIP amounts at regular intervals. Step-up SIPs are great when you have a windfall income like a bonus. You can increase your investment as income increases.
You can either choose a fixed or variable top-up amount. The Top-up option must be selected at the time of enrolment in the scheme. The terms of the top-up cannot be modified once enrolled. The top-up amount should not be more than Rs 500. The amount should be in multiples of Rs 500 only.
Flexi SIPs are also called Flexible SIPs. This type of SIP can be selected when you do not have regular or certain cash flows. In this type of SIP, you can adjust installments as you wish. A flexible SIP gives you the flexibility to increase or decrease installments.
Trigger SIPs are for experienced investors only. An investor needs to have some awareness and knowledge to invest in this type of SIP. A Trigger SIP is more of a speculation. In a Trigger SIP, you set either an index level, NAV, date or an event to take advantage of any movements.
While signing up for a SIP mandate, you must enter the term of the SIP, which is start date and end date. You will have to invest regularly for the entire term. Once the SIP matures, you have to renew your investments. If you miss a renewal or there’s a delay, you will end up missing a few installments. This affects returns in the long run.
The best option would be to leave the end date block blank in the SIP mandate. Thereby, you opt for a perpetual SIP by default. Mostly these SIPs continue till the year 2099, unless investors submit a written communication regarding the same to the fund house. You need not worry about renewal, returns and saving discipline. Thus, on achieving financial goals, you can redeem the corpus as per your convenience.
Pause SIP lets you pause SIPs when in a financial crisis. Thus, you can avoid SIP installments instead of stopping SIPs altogether. You don't have to re-start SIPs all over again.
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Following are the steps to start a SIP:
Step 1: The first step is to be KYC compliant. Fill out the KYC form and submit documents like address proof, PAN, identity proof and passport size photographs. You can either go to the branch to get KYC done or can get this done online through an eKYC.
Step 2: You can opt to invest in mutual funds via SIPs through Asset Management Companies (AMC) or Investment Services Companies (ISC). Based on your risk tolerance, you can choose from equity funds, debt funds or balanced funds. You do not have to study the past performance of the mutual fund, as the AMC or (ISC) does it on your behalf.
Step 3: The next step is to decide the specific amount that you would like to invest regularly in the SIP. You will have to fill out this amount in the form. You can either invest an amount of your own choice or use an online calculator to ascertain your investment amount to meet a financial goal (by accumulating your desired corpus at the end of the specified term).
Step 4: Investments in SIPs can be done on a daily, monthly, quarterly or annual basis. Once you decide the interval of investment, select a date to make the payments. Once selected, this date will be fixed, so choose wisely.
Step 5: Choose how you would like to make the payment. You could choose:
Step 6: After filling out the details in the form, submit it to the AMC or ISC. They will communicate reminders, receipt of payments and so on to you through emails.
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