A Systematic Investment Plan (SIP) is a systematic approach to investing in mutual funds. It allows investors to build wealth gradually by consistently investing fixed amounts at regular intervals—whether weekly, monthly, or quarterly. To make the process more convenient, investors can opt for an auto-debit facility, enabling automatic withdrawals from their bank accounts for investments in the selected mutual fund scheme.
SIPs offer flexibility, allowing investors to make contributions based on their financial situation. This adaptability gives them control over how much they want to invest, making SIPs an accessible option for a wide range of individuals.
How does an SIP work?
In SIP, the amount is auto-debited from your bank account and invested in the scheme of your choice. In exchange, you will receive a specific amount of units of the mutual fund based on its Net Asset Value of that day. The Net Asset Value (NAV) for a specific scheme on that day determines the number of units you've purchased. With each instalment, investors will get fund units, which allow them to capitalise on market fluctuations.
Here are the two principles of SIP:
Key Features of an SIP
Here are the advantages of SIP that allow investors to invest in mutual funds:
- Modest Investment Plan: Unlike significant lump sum investments, SIPs are an excellent choice for people who want to start investing with a relatively small amount. With SIP, you can start with as low as Rs 500 per month.
- Consistent Investment Intervals: By giving you the option to select from a variety of investment intervals, including weekly, monthly, or quarterly, SIP enables disciplined saving and investing. This regularity helps you cultivate a systematic saving habit while also benefiting from rupee cost averaging.
- Fixed Investment Amount: The initial investment in a SIP is predetermined. It's vital to remember that although you can utilise the "SIP Top-up" feature to make more contributions, you cannot lower the SIP amount without cancelling the current plan and starting a new one.
- Pause your SIP: You can pause investing in your SIP mutual funds for one to three months, depending on the mutual fund provider's policy. This flexibility can be beneficial during difficult times financially. When the pause period ends, the SIP automatically resumes. Check with your mutual fund provider if this pause provision is available.
- No upper investment limit: While the minimum SIP amount is Rs 500, there is no upper limit. Investors can contribute as much as they wish, ensuring consistency throughout the plan's tenure.
- Cancellation clause: SIP offers the freedom to end the plan whenever possible. You have two options for cancelling: online or by sending the applicable mutual fund provider the SIP cancellation form.
How to open an SIP account?
If you are thinking of investing in mutual funds, then open SIP from any mutual fund distributor in India. Let's discuss steps to open an SIP account with trusted banks such as ICICI Bank:
ID Proof
PAN Card
Address Proof
Bank Account Details
Passport/Driving License
Choosing a perfect SIP plan for investment
Deciding on mutual funds can be challenging for anyone new to the world of investing. However, by following the tips below, individuals can confidently select a suitable SIP plan:
Conclusion
Systematic Investment Plans (SIPs) offer a flexible, disciplined, and practical approach to maximising people's wealth. It allows individuals to invest and achieve their financial goals as per their financial circumstances. It creates an escape from market fluctuations with some advantageous features like compounding and rupee cost averaging.
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