Everything you wanted to know about SIP

SIP refers to a Systematic Investment Plan wherein the investor sets aside a particular amount for investing continuously at regular intervals. Investors can set the frequency of the investment as weekly, monthly, or quarterly, depending on their preference. Using this method, investors can buy the units of a mutual fund scheme at a pre-determined frequency.

Investors can use the systematic investment plan as a route to enter the stock market without worrying about the timing of the investment. It helps in disciplining individuals and inculcating the habit of saving as they set aside a fixed amount at regular intervals.

When to start an SIP?

There are no guidelines or restrictions for starting an SIP. You can do it at any time in an open-ended mutual fund scheme. Find an online investing platform, create your account after filling in all the necessary details and completing KYC formalities, and choose the funds you want to start your SIP with.

What is the duration of an SIP?

Many investors aren’t sure about the timeline of an SIP and ask how long you can continue investing in a fund via the investment methodology? Many experts estimate a minimum of 3 years for you to earn from your SIP investments in equity mutual funds. However, it is the investors’ choice to select an appropriate tenure. Investors can also choose the perpetual option, which allows the investor to continue the investment till an instruction is given to the fund house to stop the ongoing SIP. It is suggested that you link your SIP with a financial goal and continue investing until you reach the goal.

Is it possible to change the SIP amount?

Yes. An investor can modify the SIP amount in three ways. The first is to cancel the existing mandate and start a revised one. The second is to start a new SIP for the incremental amount. For instance, if you are currently on a systematic investment plan where you invest Rs. 10,000 per month, and you want to increase it to Rs. 15,000 per month, you can start a new SIP for Rs. 5,000 to achieve your goal. The third method is to top up the SIP. Here, you can increase the SIP amount by a fixed percentage over a fixed period. However, the mutual fund must open for the top-up facility.

Can a lump sum be added to a scheme in which there is an ongoing SIP?

Adding a lump sum investment to the mutual fund scheme in which you have a running SIP is possible. The SIP continues as it is. So, if you have a large amount of money available for investing, you can add it to your mutual fund scheme and continue the SIP, as per the schedule.

Are SIP investments safe?

SIP is a safe method of investment. When you make a lump sum investment in a mutual fund, you need to ensure that the timing of the investment is right for earning lucrative returns. For instance, you must invest a lump sum amount only when the market has hit rock bottom and shows signs of improvement in the future. If you do not consider the market condition before investing a lump sum, you could pay a high amount for the mutual fund and incur significant losses.

On the other hand, for SIP investments, there is no need to time the market. In a systematic investment plan, you start with a small amount of money, which could be as small as Rs. 100 per month. Since you are investing a fixed amount of money every month, you buy mutual funds at varied prices. At times, the price will be high, whereas sometimes it will be low. In the long term, the purchase cost of mutual fund schemes averages out. Hence, you are not paying an overvalued price for the mutual fund with an SIP investment. This is a benefit of the investment plan methodology and is known as rupee cost averaging.

Conclusion

Deciding to invest in mutual funds via SIP is a good option, especially for retail investors and first-time investors. However, this doesn’t mean it is not an investing methodology suited for seasoned investors. Remember to research more about the suitable mutual fund scheme before you begin investing. Moreover, you can use the online SIP calculator to plan your investment goals.

Disclaimer: ICICI Securities Ltd. (I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400 025, India, Tel No : 022 - 6807 7100.  AMFI Regn. No.: ARN-0845. We are distributors for Mutual funds. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully. Please note, Mutual Fund related services are not Exchange traded products and I-Sec is just acting as distributor to solicit these products. All disputes with respect to the distribution activity, would not have access to Exchange investor redressal forum or Arbitration mechanism. The contents herein above shall not be considered as an invitation or persuasion to trade or invest.  I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. The contents herein above are solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments or any other product. Investors should consult their financial advisers whether the product is suitable for them before taking any decision. The contents herein mentioned are solely for informational and educational purpose.