Many times, you have heard the word SIP whenever someone is talking about investing or planning about investing.
In simple words SIP is “A plan which systematically invests your money in Mutual Fund” Systematic
Investing Plan is related to Mutual Fund which is not a new concept but now a day’s people started
making diverse portfolios.
Through SIP you can directly invest in Mutual Fund which is the best place to start your investment in the share market.
What Is Mutual Fund?
Mutual Fund is the Collection of funds that are managed and invested by Asset Management Companies.
What Is SIP?
SIP (Systematic Investment Plan) is the Mutual Fund Investment which is done on Weekly Monthly or Yearly basis, this Mutual Fund Scheme allows an investor to invest a fixed amount on regularly to his favorite Mutual Fund Scheme.
You can start your SIP with as low as Rs 500 Only.
How does SIP work?
SIP (Systematic Investment Plan) allows investors to buy units of Mutual Fund on date which you have decided on each month over a period of time.
Why To Invest in SIP?
- It helps you to invest regularly without small capital
- It will help you in Averaging
- Power of Compounding
- Higher Returns than Bank RD
It helps you to invest regularly without small capital
With the help of SIP, you can start your Financial Planning with as low as Rs 500 only, which doesn’t give you financial burden and you can do regular SIP without any worry.
It helps you in Averaging
Mutual Fund is subject to market risk, you have always heard that line after every commercial of Mutual Fund. Every Mutual Fund is directly or indirectly related to the Share Market. If the share market falls mutual fund also goes down, share market goes up Mutual Funds goes up or vice versa.
In SIP you are investing regularly in Mutual funds. You are buying units in every situation if it is high or low which will make your profile balanced. But if you invest in One Time and then the Market starts falling and if your mutual fund also then it is not good for your financial planning.
Power of Compounding
In SIP you are investing a small amount of funds for a longer period of time which results in a large return compared to One Time Investment.
Higher Returns than Bank RD
If you compare SIP returns to FD (Fixed Deposit) or RD (Recurring Deposit) you always find that SIP will give higher returns to beat inflation and conventional investment schemes like FD, RD in an efficient manner.
SIP vs One Time Investment
|SIP Investment||One-time Investment|
|Invest on a regular basis||Invest and forget|
|Earn better returns in all Market Condition||Returns are better in Higher Market Only|
|It will not create a Financial Burden||It may create a Financial Burden|
|It protects your investment from the market crash||It may lead your investment to major loss during the market crash|
What to Look in SIP?
- Asset size
- Mutual Fund House
A reasonable benchmark to select the Mutual Fund is that the Asset Size must be 500 Crores because higher the corpus lowers the risk. Lower corpus funds are not bad either but big boats are better than small boats.
Mutual Fund House
Always go with Big AMC (Asset Management Company) like HDFC, SBI & UTI etc. They know how to handle market highs and lows which will not impact our returns.
All Mutual Funds are rated on the basis of different scenarios so you can also consider this point before selecting your SIP, 4 stars or more than 4 stars is recommended.
Things you should consider before investing?
- Overall Return
- Exit Load and Lock-in Period
- Investment Amount
The Most Important question is how long you can invest? If the period is higher you will get benefits of compounding. It also gives you an idea in which category you should invest depending on your need like retirement planning or anything else.
After selecting the SIP goal then you select a category like an example if your goal is to invest for less than 3 to 5 years then Debs Funds are good. Just do your analysis of your goal and then select your category.
There are many categories to choose like; ELSS, EQUITY, DEBT FUND, INDEX FUND, FOF, SECTOR FUND, HYBRID FUNDS, etc.
Holdings give you briefing about the fund like blue chip or large cap funds invest in top most companies in the share market and small cap invest in Small Capital Companies and if you invest in blue chip you will get a good return with lower risk and if you invest in small cap it will give higher returns with higher risk.
In this, you can look for overall returns of the Mutual Fund how this fund is performing in different market conditions or you can compare it to nifty which shows how your fund will react if nifty goes down or up.
Expense Ratio, Exit Load and Lock-in Period
Expense Ratio is the charge which is paid by the investors to manage a mutual fund and almost all Fund House charges different amount when you redeem your fund within 1 year so look at these charges because it will affect your overall returns. Lock-in Period funds are mostly ELSS funds which generally come with a 3-year lock-in period.
Mostly every mutual fund offers you to start your SIP with a minimum of Rs 500 still you can confirm the minimum SIP amount. In some cases, you have to pay 1st SIP of Rs 1000 and from next time onwards all SIP will be Rs 500.
How to Invest in SIP?
The easiest but not the best way to invest in SIP because nobody is interested in little bit of research. In the offline method, you may go to some Mutual Fund Agent and he will sell you what he wants you to sell where he gets incentive or to the AMC Direct like SBI, HDFC or AXIS etc they are best comes in best AMC but they also try to sell you where they will get profit.
The best way to invest in SIP is Online. You can check different websites like MONEY CONTROL where you can compare & check all the points mentioned above and then start investing through the Direct AMC website. All Assets Management Company website gives an option to start the SIP online which is also called Direct Plan or through different Apps like GROWW, COIN, KUVERA etc.
Benefits of Online SIP Investment
- Extra Returns
- No one influences your decision
Through Online SIP you can select the Direct Growth option which gives you more returns compared to Regular SIP which you will get offline and it will also help to increase the returns. Below you can see the same fund is giving different returns. Direct Plan Return is Higher Compared to Regular funds, while all features and conditions are the same.
Direct Plan with 18.59% return in Online Investment
Regular Plan with 17.24% return with offline Investment
If you choose online SIP it will provide you with which fund to choose, check online status, know how funds are performing and if you like to invest more you need nobody, just do what you like.
No one influences your decision
In this you can do all the research on your own or ask your friend, your agent but you can compare it and see if it is worth investing or not.
Things you need for Online SIP?
- Net banking
KYC Just create your account and verify your details most of the companies now offer e-KYC.
Net Banking for 1st time payment or most of the apps now let you invest through UPI also.
Mandate for your regular SIP where you authorize the AMC to deduct your SIP amount from your account.