Here is What You Need to Know about SIP Mutual Funds India

SIP mutual funds India are the best way to enter the world of long-term investment. A SIP helps you distribute your equity mutual fund investments over some time. This article is your guide to SIPs, their benefits, and the reasons you must invest in them. 

What is SIP?

SIP enables you to invest a small sum of money in a mutual fund scheme at regular intervals. Once a SIP is activated, a predetermined amount is automatically deducted from your bank each month and invested in the mutual fund of your choice. 

Unlike a lump sum investment, SIP lets you spread your investment over some time. Therefore, you do not need a large or a lump sum amount of money to begin your mutual fund investment via SIPs. SIP compels you to set aside an amount at fixed intervals that helps you maintain a financial discipline as well. 

Benefits of SIP

SIP mutual funds India is the most simple and convenient way to invest in a mutual fund. You can get started with a small amount and reap significant rewards in the long term. 

The key benefits of SIP investment are:

1. Convenience

   With SIP, you can conveniently begin your investment plan with an amount of Rs.100 and more per month. 

   Over time, you can increase your investment amount once you understand mutual funds. You can begin your investment in a simple way and continue it in a disciplined and phased manner.  

2. Rupee Cost Averaging

   With SIPs, you need not follow the market as you can buy more mutual fund units when the markets are low and lesser units in a booming market. It reduces your overall investment costs in the long run. 

3. Power of Compounding

   With SIPs, you can leverage the power of compounding on your investment in the long term. 

   The rupee cost averaging principle ensures that SIPs offer you a better return on investment than a lump sum investment as the investments are staggered over a long period. 

4. Higher Returns

   SIP mutual funds India can offer a much higher rate of returns than PPFs, Bank FDs, and other traditional investment options. 

5. Disciplined Investment

   Investing in SIP mutual funds India will make you a disciplined investor as you will diligently allocate a certain amount every month in the mutual fund of your choice. 

   You can manage your finances in a better way. With an automated payment option available, you can also avoid the hassle of manually investing the amount every month.

6. Emergency Fund

   SIPs provide the benefit of redeeming your investment at any time (provided there is no lock-in period), helping to act as an emergency fund. You can also stop your SIPs anytime, and the fund house cannot object to this decision. 

Who Must Invest Through a SIP?

SIP investment is ideal for first-time mutual fund investors who are just beginning their mutual fund journey. 

It is ideal for investors with a regular income source as they can divert a portion of their salary towards SIP mutual funds India. SIPs help salaried individuals set aside an amount to save and maintain financial discipline in the long run.

How to Choose the Right SIP Mutual Fund?

You must consider the following factors before making a choice:

1. Goals

   Choose mutual funds that help you take a step closer to achieving your goals. You must first analyze your requirements, match them with the fund objectives, and initiate a SIP investment. 

2. Risk Appetite

   It is key that you invest only in those mutual funds whose risk level falls within your risk appetite. If you are a non-risk-taking investor, you must invest only in those funds that carry minimum or no risk. 

Steps To Invest in a SIP

Follow these steps to start investing via SIPs:

1. Decide Investment Goals

   Every mutual fund is designed to cater to a specific objective of the investor, such as return amount, risk appetite, and other goals. You must assess your requirements and pick the mutual fund that aligns with your risk profile and goals.

2. Choose between SIP or Lumpsum

   Once you assess your needs and profile, you can choose amongst the two investment options – single lumpsum investment or staggered SIP investment over time. 

3. KYC Verification

   All mutual fund investments offered by any company require a mandatory KYC verification. A one-time KYC verification is mandatory as per the Securities and Exchange Board of India (SEBI) for mutual funds investment in India.

How Does SIP Work?

While investing in SIP mutual fund, you purchase a certain number of units of funds. SIP mutual funds benefits can be leveraged in both bullish and bearish markets. 

When the market is down, you can purchase more fund units. When it is booming, you can buy lesser fund units. The NAV of all mutual funds is updated every day, making the cost of one SIP instalment differ. 

Over a period, the SIP instalment purchase cost averages out and ends up as a lower amount which is also known as rupee cost averaging. The rupee cost averaging benefit cannot be availed if you invest a lump sum amount in a mutual fund scheme.  

With SIPs, you can invest in any mutual fund and create wealth in the long run. In exchange for money paid to buy the mutual funds, certain units are allotted to you. 

For instance: If the NAV of a mutual fund is Rs.20 and you invest Rs.1000 in that fund, you will be allotted 50 units of that scheme. 

As the fund NAV grows, your investment value also will increase. In the consecutive year, if the fund NAV becomes Rs.30, the 50 units you had initially purchased for Rs.1000 will now be worth Rs.1500.

In this manner, as your investment grows, you can create wealth over the long term.   

Important Features of SIPs

• SIP is one of the safest ways to invest in mutual funds as it is independent of the market condition, and you will not have to pay a high price for a mutual fund at any time.
• Tax on SIP is calculated on individual investments with varying rules for equity and debt funds.
• Unlike Fixed deposits or Recurring deposits, SIPs can be stopped anytime. After you stop paying for a SIP plan, you can either redeem your investment amount or continue to invest in the fund.
• You can save tax if you invest in an ELSS mutual fund through SIP up to even Rs. 1.5 lakhs.
• If you wish to increase your SIP investment amount, you can simply begin a new SIP with the increased amount in the same or different mutual fund. 
• Most SIPs can be started online through mutual fund company websites.
• If your mutual fund is an open-ended one, there is no lock-in period for the SIP, and it depends entirely on the mutual fund invested in. But some mutual funds such as ELSS have a lock-in period of 3 years. Some other mutual funds have lock periods as well, and these funds are called close-ended funds.

How to Choose the Right SIP mutual fund in India?

Before jumping into your SIP investment, you must know which fund to invest in to get the best returns for your hard-earned money. 

You must research for the best SIP mutual fund India by checking the previous years’ performance of the funds.

Keep the factors given below before choosing your mutual fund:

• The asset size or the total corpus of the mutual fund must be big. Typically, 500 crore is a good number, especially if you are a first-time investor.
• The mutual fund must have been around for at least five years or more.
• Always pick a reputed mutual fund house to choose your funds from as they would have been in the business for a long time, and there is less chance of any fraud.
• You must begin your SIP investment through your bank through the relationship manager.

The Bottom Line

SIP mutual funds India has become the most popular investment vehicle in recent years for NRIs in Canada due to its reliable and flexible nature. It helps you save to achieve your future goals without putting too much stress on your finances. 

All you need to do is smartly choose your mutual fund based on your risk appetite and investment horizon, regularly make the payments to reap the SIP investment rewards after the stipulated time.