What are SIP in Mutual Funds and its features
- A Systematic Investment Plan is one of two methods of mutual fund investments.
- With SIP, you can invest small amounts at frequent intervals.
- SIP benefits include Rupee cost averaging and Power of Compounding.
- SIP promotes portfolio diversification.
- You can choose ultra-short to long-duration investment horizons with SIP.
Mutual Funds continue to remain the most popular investment instruments among conservative and aggressive investors alike. The traditional method is to invest in Mutual Funds is via a lump sum. Today, you can also invest via Systematic Investment Plans or SIP. Let us understand what is SIP in Mutual Funds.
What Is SIP?
A Systematic Investment Plan (SIP) is an investment method to buy Mutual Funds units in instalments at regular intervals. Through SIP, you can invest a fixed amount per your preferred investment tenure – fortnightly, monthly, quarterly, etc. You just need to select your preferred funds and set up standing instructions for your bank to deduct the fixed amount on a specified date.
SIP – Features And Benefits
Having explained SIP meaning, let us look at its features and benefits.
SIP investments help you become a habitual investor. Since you need to invest a fixed sum at a fixed interval, it makes you more conscious of your investment, inculcating the discipline of saving money regularly.
SIPs are relatively flexible as you can increase or decrease the amount of your monthly investment. During a financial crunch, you can pause the SIP investment for a specific time. Also, you can invest in multiple SIPs at any given time.
Rupee Cost Averaging
With SIP, you do not have to worry about market volatility or fluctuations, nor do you have to time the market. You end up buying more units when the market is low and fewer units when the market is high, thus averaging your investment.
With SIP, you can reinvest your profits to generate better profits instead of redeeming them. This is known as the power of compounding. By staying invested for longer terms and reinvesting your earnings, you can earn better, inflation-adjusted returns.
Low Cost of Investment
Depending on the Asset Management Company, you can begin your SIP investments with instalments as low as INR 100 to INR 500. Moreover, the expense ratios associated with the transactions are also significantly low.
You can choose from various types of mutual funds with varying investment durations. For instance, you can invest in overnight funds or funds with 10-years investment durations. You can also exit most mutual funds anytime, except ELSS tax-saving funds with 3-year lock-in periods.
The SIP Investment Process
Now that you know what a systematic investment plan is let us learn how to invest via SIP.
- Visit the website of the AMC and create an account.
- Complete your KYC by providing your PAN, ID, and address proof documents.
- Provide the necessary details – your name, bank name and branch, IFSC code, and savings account number to debit the SIP amount.
- Select the preferred mutual fund scheme, SIP amount and investment date.
The SIP method of investment is ideal for all kinds of investors. You can use SIP to begin your investment journey or if you wish to diversify your investment into various mutual fund schemes. With small, regular investments, you can build a significant corpus over the years.
The time to invest is now, and you can start your first or next SIP investment with digibank by DBS.
*Disclaimer: This article is for information purposes only. We recommend you get in touch with your income tax advisor or CA for expert advice.