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SIP (systematic investment plans) is very popular as ways getting the investments in mutual funds in a systematic way and also an easy way too. Under the SIP scheme, people can make a regular investments in their preferred Mf schemes at a regular interval of time.This investment is made on a periodic interest, monthly, in most of the cases.SIPs have become popular among the Indian investors as it serves as an easy and systematic way of investing in mutual funds, which also complements to the Indian financial ecosystem.There are numerous advantages to starting an SIP in mutual funds.First, a SIP has an advantage of being a disciplined way of investing. Investors gets benefited from a disciplined way of investing as it helps them put away a certain amount of money for the future that they might not be able to accumulate on their own.This investing is especially suitable for the potential investors even if they have lesser savings and earnings.The SIPs have grown in popularity for the reason that it engages people to invest a fixed amount for a course of time, which helps them reap the benefits of market consolidation and generates substantial profits.Overall, SIPs have been a positive step forward in a country like India, where people still lack the proper knowledge on how to spend the money they receive. Because SIPs operate in a systematic manner for years, even a small difference in the rate of interest can eventually increase the profits gained by an investor.
SIP is very easy to invest in and it can be done online or offline. The step wise procedure towards the same are depicted below :
When you regularly invest in a fixed sum into a mutual fund (a receipt-golu-like way of investing termed as SIP, that’s short for systematic investment plan), you are automatically disciplined in your investing process: you end up buying more units when the markets are down, and fewer units when the markets are up. So you end up with an average cost per unit that is lesser than you should pay, even if you’d tried to time the markets. This is the power of rupee cost averaging – in the intricate maths, you hedge against the risk of selling high and buying low, and create wealth over the long run.
Foster frequent savings and disciplined investing: Equity Linked Savings Schemes (ELSS) encourage frequent savings, with the flexibility to switch investment amounts depending on prevailing financial conditions.
They also have low initial entry requirements, enabling even modest savers to start with as little as ₹500 in the first year.
Given the power of compounding in the long term, even small amounts have the potential to grow substantially.
Conducive to taxpayers: The levying of taxes is an issue on everyone’s minds, as SIP investments in India come with favourable tax treatment, especially with regard to taxation of long-term capital gains.
| Month | Investment Amount (₹) | Units Purchased | Net Asset Value (₹) | Total Units |
|---|---|---|---|---|
| January | 5000 | 100 | 50 | 100 |
| February | 5000 | 90 | 55 | 190 |
| March | 5000 | 110 | 45 | 300 |
| April | 5000 | 95 | 52.5 | 395 |
| May | 5000 | 105 | 47.5 | 500 |
All SIPs in India are under the control of a regulatory commission, which is called the Securities and Exchange Board of India (SEBI), which is an overseer of the working of the mutual fund industry and the targeted investors. SEBI allots certain norms and rules for mutual funds to help it decide on investing for the customers: disclosure norm, risk checking and investor’s grievances redress system for the funds are the key approach by SEBI to market investigating practices.
But the biggest advantage that SIPs have to offer you is the carriage-ride that they give you to a little bit of the inherent volatility of markets. Every month, you invest a certain amount, irrespective of the state of the markets. In a downturn, you buy more at the lower prices; in an upswing, you buy fewer units. You automatically start cost averaging, in a simple way; correcting your mix of winners and losers purely by the vagaries of ‘market timing’, since it is technically impossible to be better at that than randomly.
The great thing about Indian mutual fund houses is they offer almost every type of scheme that can be suitable for SIP investment, for every type of investor with varying investment objectives, risk profiles and time horizon. From equity funds, debt funds, hybrid funds, sector funds to “theme funds”, all schemes could be ideal for you depending on your financial goal. Every scheme has a different investment strategy, asset allocation and characteristics of risk and return.
Investing through SIPs requires us to elaborate a couple of choices, namely the investment horizon, risk appetite and as per what financial goals are sought to be achieved. Regularly reviewing and revising your portfolio based on the performance of schemes remains a priority. Expense ratios involved in mutual funds are an important element as they are directly linked to the corpus or amount invested. A higher expense levy reduces the accumulated amount owing to the expenses which are part of seeking good returns from such investments.
The long-term capital gains on equity-oriented mutual fund held for more than one year is taxed at 10 per cent on the gains over ₹1 lakh whereas the short-term capital gains on equity funds for less than one year are taxed at 15 per cent. The long-term capital gains (36 months or more) on a debt-oriented mutual fund is taxed at 20 per cent with indexation benefit, which is not available for short-term capital gains (taxed as per the income-tax slab of the investor).
SIPs could be invested through electronic platforms such as online, mobile applications, or offline through a visit to the mutual fund house or the registrar’s office. SIP investors can invest in mutual funds with convenient frequencies (monthly, quarterly or semi-annually). One could start with 500 if needed, gradually increasing the investment amount in each instalment.
Today SIPs have made mutual fund investment a disciplined and affordable procedure for physical personals to create their wealth. Through the principle of rupee cost averaging, such investments could survive the pressure and volatility of markets and help you to achieve your long term financial goals and ambitions. With a research, a risk-prone attitude, a pitiable disease of being greedy and regular monitoring, your investments through Systematic Investment Plan (SIP) can become an integral part of your financial planning journey.