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  • Category: Mutual Funds

    What Is Systematic Investment Plan?

    How one can get benefit from SIP?
  • Answers

    8 Answers found.
  • Benefit 1 : Become a disciplined Investor. Do it every month or every quarter and with auto debit forget abt making payments
    Benefit 2 : Reach your financial goals.
    Benefit 3 : Take advantage of Rupee Cost Averaging

    Benefit 4 : Take advantage of Power of Compounding

  • Hi,

    Systematic investment plan (SIP) is a method of investing in mutual funds.

    Through SIP you can buy units on a given date each month for the mutual fund of your choice. You have to decide on the amount you want to invest every month and the mutual fund scheme in which you want to invest.

    You can either do a SIP by issuing post-dated cheques or ECS instruction. The investment will be made regularly every month. You can start with a minimum amount of Rs 1,000 per month.

    The main benefits of SIP are

    1. SIP increases our saving power. By investing small amount every month you are not only compounding your money but also saving money regularly.

    2. You can invest small amount periodically in a mutual fund. By this way investment will not appear as a burden.

    3. SIP is one of the best way to prevent losses in mutual fund during volatile market. You can buy units at lower level when the market is volatile.

    4. You can also invest in Tax benefit mutual funds (ELSS)through SIP every month which serves the dual purpose of investing and also for tax saving every year.

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  • Nowadays SIP has become a very popular mode of investing in mutual funds. So what is this SIP? Basically, it is called a systematic investment plan.

    The basic idea of SIP is that it works like a recurring deposit of a bank. In case of recurring deposit of a bank a person invests a fixed amount every month. Similarly, in SIP, a person can invest a fixed amount periodically either monthly, quarterly, etc. As the amount is invested every month one gets the cost advantage. Investors should remember that no one can time the market, so it is always better to invest systematically to get the advantage of market conditions. In the current situation where there is uncertainty regarding the stock market SIP is very helpful. When the market is in downtrend the investor will receive more number of units and when market is in an uptrend, he will receive lesser number of units. So the investor can average out his buying cost. Further, if the investor has opted for the ECS or direct debit facility, he doesn't have to sign a cheque every time; money will be directly debited from his bank account on a particular date chosen by the investor. If the investor is opening more than one SIP, it is better to opt for different dates for each SIP, so that he gets cost advantage of market conditions at different dates.

    Fund houses provide this facility so that investors can invest systematically in the mutual fund. Moreover, many fund houses have launched the micro-SIP, i.e. the amount of SIP is Rs. 50 per month. So, even a person having a low income can start investing in mutual funds through SIP by investing a small amount. Normally fund houses offer this facility to every fund – equity, balance and debt funds.

    The investor should remember that if exit load is applicable, it is applicable to every SIP installment separately. Suppose if the investor is investing Rs. 1000 per month and there is an exit load if he exits the investment before six months, then in this case the six months period is applicable to each installment of SIP separately. Investors should take note of this fact while withdrawing money from the fund.

    Much is said about the SIP, what is the real advantage of SIP, or how can one use it as a tool to satisfy his short term goals? Just like a person opening a recurring deposit amount for regular investment, he can start an SIP as a regular investment strategy. Using this strategy he can accumulate the required amount which can be utilized for various purposes/expenses. As the payment if school/tuition fees of children, payment of insurance premium, payment of taxes etc, are certain routine expenses he can start SIP and accumulate the required amount for that particular expense.

    Let us assume that a person is paying an insurance premium of Rs10,000 per year. He can start a SIP of Rs.1000 per month in any type of fund as per his risk appetite. Assuming that he has invested in an equity mutual fund and has received returns of say 12%, his investment will become Rs.12683 after one year. He can very well pay off his insurance premium of Rs.10000 and still will be left with the surplus of Rs.2683. This surplus amount can be continued in the same SIP. Suppose the investor follows the same practice every year the surplus amount invested will become Rs.47,083 after 10 years. So the investor will be having a sizable amount after say 10 years, which he can utilized to satisfy his other goals.

    Similarly, the investor can use this strategy and start SIP for various purposes/expenses. If the investor follows this systematic way of investing then he can easily meet his expenses and still be left with surplus which will accumulate to be a sizeable corpus after certain number of years.

    Investor need not always opt for the equity mutual fund for SIP. In case the stock market is not going well, then the investor can very well opt for debt funds or balanced funds for this strategy. Last year, when the stock market did not perform well, debt funds have given good returns.

    Nilesh Panchal
    College Editor of IndiaStudyChannel
    Your children will become what you are; So be what you want them to be.

  • Hi

    If you don't want to invest your entire money at once but willing to invest some fixed amount regularly till certain time period,then Systematic Investment Plan is for you.By this option,the amount of risk is low and the outcome is high.You need not even worry about the daily fluctuations in stock market.

    For detailed information,please go through my article

    Systematic Investment Plan

    Diamond Member ISC

  • Hi Manas,

    Well firstly SIP is for Long term planning prospects of your life. Atleast have some timeline of about 7 + years and then start an SIP. You will get optimum benefit if you go for longer duration as well.

    You may be earning money now sufficiently to take care of the home needs. But in Future if you are looking at life after marriage and your child's education then opt for SIP.

    Ok here is how it works,
    When the market is down like now and you make an initial monthly investment of 1000 Rs, you will be alloted some number of units say 150 in the stocks that the mutual fund looks into and then for the month your fund value is obtained. If the market is down the advantage is you get more number of units in MF at a lesser price. Please do not be bogged down by the overall net value of your fund when the market is down.

    Ok now after some time the market goes up and then you find that in that month for the investment of 1000 Rs you get maybe 60 to 70 units in the same MF. BUT THE MAIN THING NOW TO BE SEEN IS THAT YOUR OVERALL ASSET VALUE would have shot up proportionately to the market rise and you would be getting some good returns in your fund.

    But to get a decent overall gain you need to give yourself atleast a couple of years time for the fluctuations to set in and then you would be getting good results. Also SIP is coming with Compounding interest.

    So calculate yourself....Rs 1000 Invested monthly for say 10 years and then the rate of interest at the worst case scenario being 20% (market giving usually 30 to 40% returns)and then see you would have definitely got decent sum at the end of ten years.

  • From The name you can understand SIP will give you disciplined for saving.
    Benefit-You invest monthly/quarterly instead of lump sum amount so you do not have any pressure in any particular month to make payment to invest.

    You do not have too go to any office for deposit, Mutual fund company will take it from your bank directly through ECS.

    when the market goes down you do not loose your money the way market is going down.

    disadvantage:( disadvantage may not be the appropriate word):You do not get the same return which would be lump sum invest will give you

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