Systematic Investment Plan (SIP) is an
investment route offered by mutual funds wherein one can invest a hard and fast
amount during a Mutual Fund scheme at regular intervals– say once a month or
once a quarter, rather than making a lump-sum investment. The instalment amount
might be as little as INR 500 a month and is analogous to a recurring deposit.
It’s convenient as you'll give your bank standing instructions to debit the
quantity monthly.
SIP has been gaining popularity among Indian
Mutual Funds investors because it helps in investing during a disciplined
manner without fear about market volatility and timing the market. Systematic
Investment Plans offered by Mutual Funds are easily the simplest thanks to
entering the planet of investments for the future. it's vital to invest for the
long-term, which suggests that you simply should start investing early, so as
to maximise the top returns. So your mantra should be - Start Early, Invest
Regularly to urge the simplest out of your investments. The bear market always
the proper time to start out a SIP in equity mutual funds. Buying stocks when
the market is low and selling them when the market goes up may sound sort of a
great idea, but it's almost impossible to try to so - a minimum of on a regular
basis. that's why investors shouldn't concern themselves with market movements
to some extent. they ought to start and continue with their investments
regardless of the market conditions.
A SIP doesn't protect you against
equity-market losses. All it does is that it makes sure that your investments
in equity funds are well opened up over a period of your time in order that you
do not catch a market peak. Now, SIP investments, too, will make losses if the
market declines steadily after you start your investments. But because SIPs
assist you to invest in smaller instalments and spread them out over time, you
get to average your investments at lower levels within the hope that when stock
prices recover, those cheaper investments can pay off. If you're taking stock
of your SIP returns over only one market phase, particularly a bear phase, the
investment may show a loss.
ELSS or Equity Linked Saving Scheme is an
open-ended equity mutual fund that gives the twin-advantage of wealth creation
and tax saving. These funds have a lock-in period of three years and invest
capital in equity and equity-related products. Investment in ELSS funds
qualifies for a deduction of up to Rs 1.5 lakh under Section 80C of the income
tax Act, within the year of investment. within the highest income bracket of
30%, you'll save a maximum of up to rupee 45,000 as taxes by investing a
maximum of Rs.1.5 lac under Section 80C of the income tax Act, within the year
of investment. We strongly recommend that you simply plan your tax savings
through SIP mode instead of investing a lump sum. SIP gives you the advantage
of rupee cost averaging while reducing volatility over the future period. It
also reduces the strain of arranging an enormous sum at one attend save tax.
variety of investors find this difficult and find yourself saving but what
they're required to save lots of money.
Power of Compounding
When you invest regularly through SIP and
invest for the long term period, the benefits are magnified by the compounding
effect. Compounding effect ensures that you get returns not only on your
principal amount (actual investment) but also on the gains on the principal
amount i.e. your money grows over time as the money you invest to get returns.
And your returns also earn returns.
5 Years’ early start SIP result in an
additional Rs. 1.21 crore in the final corpus.
If you get start SIP at the age of 25, as per
the illustration shown a corpus of approximately Rs. 2.76 crores can be
generated at your retirement. If you would have waited 5 years and started SIP
at age 30, a corpus of approximately Rs. 1.54 crore would have been available
to you at retirement i.e. a difference of rupee 1.21 crore which is the cost of
delaying starting SIP.
Top Up SIP
Top up in Systematic Investment Plan (SIP)
allows an investor to increase his instalments by a fixed amount or percentage
at pre-determined intervals in the SIP. This increase can be combined with your
income/savings growth.
Benefits of Top-up SIP
Top Up in your SIP scoops up your investments
by bringing them in line with an increase in your cost of living and assists you
in planning for your financial goals.
It can also help you to reach your financial
goals earlier or create the largest corpus for your goal. The top-up facility
helps you to develop the habit of periodically increasing your investments with
increasing disposable income.
Autoroute to increase savings – SIP Top-Up has
an autopilot feature to keep your savings in line with the rise in your income.
Achieve your goals faster – With your
incremental investing on regular intervals, wealth tends to compound thereby
helping to attain your goals faster.
SIP vs. One-time Investment in Mutual Funds
The table below shows the difference between
SIP and One-time investment:
Mode of
Investment
|
Investment is
made in installment
|
Single
investment of lump sum amount is made
|
Period
|
All installments are not invested for same
time
|
Full amount is invested for the entire
period
|
Ideal
Investors
|
It is good for
beginners
|
It is best for
educated investors who have a better understanding of markets
|
To start investing in mutual fund one can
choose either way. Both are the perfect ways of investing within the mutual
funds for wealth creation. Each has its unique way of benefiting a specific
class of investors.
SIP can and will be stopped in three
circumstances. One, you realise that you simply have chosen a wrong asset class
or a wrong fund (for instance, a large-cap fund once you wanted the growth of a
mid-cap fund) for your portfolio. Two, a fund that you simply are investing in
maybe a chronic underperformer (versus its benchmark or category). Finally,
stop your SIPs in an equity fund as you meet up with your financial goal. Many
investors give up their motivation when the markets enter a bear phase. it's to
discourage such self-defeating behaviour that advisors ask you to continue
together with your SIPs through ups and downs of the market.
You can invest online directly through the web
portal of the mutual fund company. As a new investor, there is one-time
documentation, called KYC (know your customer), which you will need to complete.
If you have an Aadhaar card and online-banking facility, then you can start
investing in mutual funds with e-KYC, wherein you can invest up to Rs 50,000
per annum per fund house. Investor Start an online SIP with auto-debits from
your bank account. Many fund companies provide this feature. In order to set up
an auto-debit facility, go to the web portal of the fund house, choose the fund
(The fund in which you want to start a SIP) and provide the required details
such as the amount and time period of SIP. Keep your PAN handy. You will get a
URN number from the fund company. Now log into your bank account and enter the
number there. Some Mutual fund houses may have another method to set up a
standing instruction. In this, a small amount (for instance, Rs 1) is credited
to or debited from your bank account.
In the future, if you want to stop your SIP, just login to the mutual fund company's web portal and exercise the option. You can also exercise this option through your bank, online or offline or get the help of your mutual fund broker.
Investment option
Rate of return
Investment
amount of Rs.5000 per month after 5 years
PPF
8.00%
Rs. 3,67,069.89
Post Office Monthly
Deposit
7.50% (compounded
quarterly)
Rs. 3,64,448.61
SBI Recurring Deposit
8.00%*
Rs. 3,67,069.89
SIP in HDFC
Balanced Fund
16.66%**
Rs. 4,49,258.07
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