What is Systematic Investment Plan | How SIP Works & Key Reasons to take SIP

Are you interested in investing money in mutual funds? Then you have to know about Systematic Investment Plan i.e. What is SIP? By knowing about the SIP, you can spend your money in any bank’s mutual fund. So, here we are providing detailed information regarding Systematic Investment Plan. Also, check the benefits and working process of SIP. Know the key reasons why to choose only the SIP. Thus, you can get more information about the Systematic Investment Plan like what is SIP, features, benefits, etc. from the below sections.

What is SIP?

SIP which is commonly called as Systematic Investment Plan. The SIP is the method of investing a small amount in a particular period when compared with the large amount invested at one time. Otherwise, the Systematic Investment Plan is nothing but investing money directly into mutual funds. It will help you to invest amount for monthly, quarterly and yearly. Also, the Systematic Investment plan is a planned approach which makes you invest and help to make a habitat of saving money for future.

The Systematic Investment Plan into a mutual fund is the most popular scheme in India. The concept of SIP is that the investors take more units when the market value falls. Also, the investors make fewer units when the market price is high. Therefore the annual cost of the product will not remain same it may remain or falls over a particular period. When compared with other plans the SIP is the easy and more convenient investment plan. Therefore the money in your account is automatically transferred into the particular SIP Mutual Fund Account. This is the answer to your question ‘What is SIP’.

Key Features of Systematic Investment Plan

Till now you have seen What is SIP. Here there are some key features for SIP (Systematic Investment Plan) which are listed below. They are

Affordability:

The Systematic Investment Plan is Affordable because you can invest the amount of Rs. 500/- which is the minimum investment plan allowed in SIP.

Liquidity:

The SIP Mutual Fund has a facility to exit from the investment plan at any particular time, expect the equity linked saving scheme because it has a lock-in period of 3 years. If you exit before the stipulated period, there may be some exit load which varies from 0.01% to 2%.

How does the Systematic Investment Plan work?

From the above section, you have clearly understood what is SIP? And now you have to know how it works? Here the Stepwise procedure is given to understand clearly about the working of Systematic Investment Plan (SIP). So, follow these steps carefully and know how SIP Works.

Step 1: Keep a goal that you want to achieve 

In the first step, you should have a clear defined goal in your mind. Then to achieve that goal or any other goal you need money. So, you need to save money for it at regular intervals of time. Also, you should know when you want to achieve this goal and how much money you would need to complete the target.

For example: If you have invested money for five years to attain the total amount of Rs. 5,00,000/-, then it helps you to complete your goal.

Step 2:  Start Systematic Investment Plan to meet the goal

Once if you have identified your financial goal then the next step is to do the SIP planning, i.e., which helps you to know how you can reach the target.

The example which is given above is that if you want to achieve your goal of Rs. 500000/- in 5 years. Then approx you have to pay Rs. 6000/- per month. So, this can give you a return of approx 14% p.a. for the period of 5 years.

There are many investment Plans. Thus you can choose any one which helps you to attain your goal. You can call and speak with the customer care about the particular investment plan which you are interested and helps to attain your dreams come true.

Step 3: Then invest money regularly to achieve your goal

If you have decided which investment plan is best for you. Then you need to follow the SIP Payment plan which is created for yourself. After that, the amount is automatically debited from the savings account to the particular SIP account. At first, you may feel hard but stay focused on the goal that you want to achieve.

Note: You can invest money in your SIP Mutual Funds Account for monthly, yearly, and daily based on your interest.

How much should you invest in SIP Account

It is entirely based on your decision to invest in your SIP Account. That’s why this is the best thing about the type of investment. Suppose if you have funds then you can make payment for one time and lock it for 3 to 5 years, or you can choose paying monthly or yearly instalments. So, you can pay the amount for a monthly or annual basis for a fixed period. The minimum amount is Rs 500/- & the maximum amount is Rs.100, 000/- should be deposited in your SIP.

In what time did you invest in SIP

If you want to invest in SIP whenever you feel to invest otherwise, you can invest whenever you have funds. Then it is wrong. We would say that the right time to invest the amount in SIP is when the mark is unstable. Because if you invest the amount in SIP when the market is down then at that time, your SIP Manager will purchase some number of mutual funds for you. Again if the market turns down, then your investment would make a neat profit.

How to apply for Systematic Investment Plan

You can apply for SIP through an agent or you complete the formalities by yourself also. So, you have to follow the below steps to apply for SIP.

  • Firstly get the application form of the bank in which you want to open you SIP Account.
  • Then fill the application form of the particular bank and submit it at the designated office.
  • Later, you have to submit the photocopy of your PAN Card, Address proof, and two passport size photographs with the application form.
  • After that, you can select the auto debited option. So that it will automatically transfer the funds from your account to the SIP. This will helps to save your trouble to remember to make payment in SIP on time.

 Key Reasons for Investors to take up Systematic Investment Plan

These are some key reasons which tell you to choose only SIP (Systematic Investment Plan). So, they are listed below:

  • The Not-Marketing Timing, Time in the Market:

The big thing that stops an individual for entering the stock market is wrong timing. Also, they worry about if they enter at the right time when the value is high but while in the time of selling it falls. The value in the stock market will not remain same for every time. So, because of these negative experience, many investors won’t return for a long time.

When compared it with the SIP, the SIP is a long time investment plan. So, with the more time in the market, you can have a chance of earning a superior return than that of single large investment.

  • Affordable: 

The SIP is convenient because you can start your SIP Account with a small amount of RS.500/- per month. So, even a student can start a SIP with the spare pocket money.

  • Innovation:

Every year banks are providing new facilities which attract the investors to open SIP Account. So, among all facilities, you can opt for daily/ weekly/ quarterly/ set NAV Limits and so on.

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Updated: March 3, 2017 — 9:38 am

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