SIP – Systematic Investment Plan

Systematic Investment Plan or SIP is a strategy of investment that allows one to invest a certain amount of money at a regular interval. For instance, you can invest small amounts of money in weekly, monthly or in quarterly basis instead of investing a lump sum in a year. Hence, SIP investment plans are the smart and hassle-free way of investing in mutual funds (or in other investment instruments) to create wealth for future.

How Does SIP work?

SIP makes investment easier and more flexible. When you apply for a SIP scheme, your money gets automatically debited from your bank account on a stipulated interval. The money gets invested into the mutual funds you have purchased. Based on the NAV (Net Asset Value) of your funds, you are allocated a certain number of units for the day. Every time you invest, additional units get added to your account based on the ongoing market rate(NAV).

The investors don’t require to be an expert in market timing to invest in the Stock Markets. Units are purchased at different rates. When the prices are high, the investors buy more units, but when the prices are low, the investors buy less units.

Two methods that greatly benefit the investors under a SIP scheme are – Rupee Cost Averaging and Power of Compounding.

Rupee-Cost Averaging

The Stock markets in India are unpredictable. Hence, it is often difficult to understand which is the best time to invest and which is not. Rupee-cost averaging helps investors to get rid of this problem. It allows your invested money to earn less units when the price is high and more units when the price is low. It also allows you to get a lower average cost per unit during volatile periods.

Power of Compounding?

Whatever amount you invest, you earn interest on it. Such interests get compounded and accumulated over a period of time. The longer the tenure is the higher the fund value would be. Therefore, if you stay invested for a longer period of time, you can accumulate more wealth with the power of compounding. Hence, if you start investing early in your life, you will create more wealth than one who comes in later.

The Benefits of investing in Systematic Investment Plans

1. Disciplined Saving – Planning and discipline play crucial roles in a successful investment. When you invest in SIP, you agree to invest at certain intervals (monthly or quarterly etc.). This helps you save regularly in a disciplined manner. However, it is important to start investing early in life to get the benefits of SIP.

2. Flexibility – There is no lock-in period under SIP investments (though it is advised to stay invested for a longer period of time). However, investors can exit the plan any time they want. SIPs also allow investors to increase or decrease the amount of money being invested.

3. Long Term Gains – SIP is best for long-term investment goals. Since you start investing smaller amount, you may not see much profit initially, but gradually and in the long run you will find a huge growth of your invested money. Rupee cost averaging and power of compounding are the reasons for such a high return on investment.

4.Convenience - SIP is the most convenient and hassle-free mode of investment. You can authorize an ECS mandate from your bank to automatically pay for your SIP investments on a monthly basis.

5. Moderate Risk- Small retail investors generally do not possess the resources to go for active investments. So, they opt for SIP as it allows them to earn above average return on their investments with moderate risks.  

Why Should you Consider Investing in a SIP?

Everyone likes to talk about maximizing profit, whether the investment is for a long, medium, or small term. Investing in a SIP is the simplest and best way to achieve your long-term as well as short-term financial goal. As a systematic investment plan offers a plethora of benefits, one of the major advantages of investing in a SIP is that it inculcates a disciplined approach to invest and cultivate the investing habit in the life of an investor.

Moreover, investing in a SIP can be a great option, as it finances all the major future goals of your life and is ideal if you are a young investor and it gives you the advantage for wealth creation over a long period of time. SIP also minimizes the risks related to equity fluctuations.

How Much do you Need to Start a Systematic Investment Plan?

Rough calculations or an approximate calculation can be dangerous when you are planning a particular financial goal to achieve. It is always best to make a foolproof financial plan and work with real numbers while operating towards your short-term or long-term financial objectives.

A systematic investment plan helps you achieve these goals sensibly by making you invest in a mutual fund scheme of your choice. And in return, it manages your investment portfolio. You can start investing in SIP with a minimum of Rs. 500. So, by investing even a minimum amount in SIP, you can fix a time period to achieve your goal.

Can a SIP be Customized?

Investing in SIP is considered as the most promising investment. Instead of keeping your money ideal in a savings bank account, you can invest in a SIP and take benefit of regular savings along with earned interest. However, the perks of investing in systematic investment plan do not stop right there. You can customize a SIP according to your requirements. In case you want to change your fund options or make some other desired changes, you can do so by following some simple steps as mentioned below:

  1. Stop your existing SIP by providing a simple request on a paper.
  2. It takes around 15 days to stop your current fund.
  3. Fill out the new application form for the fund you plan to do SIP, SIP registration form, and OTM/NACH form.
  4. Deposit the fund amount with an authorized representative.

SIP Calculator

In order to make a successful investment, it is crucial to maintain a systematic and disciplines manner. Financial planning is of utmost importance. That is why SIP calculators play a key role in the success of one’s investment.

An SIP calculator allows an investor to estimate the return he/she can receive after the completion of a specific tenure for a specific invested amount of money. Moreover, if he/she has a fixed financial goal in mind, e.g. a retirement corpus or an emergency fund for sudden medical expenses, SIP calculators also help him/her estimate the amount of money he/she needs to invest every month to achieve his/her financial goal for future.

3 Simple Steps of Using an SIP Calculator  

An SIP calculator uses a few data to estimate the final value of your investment. There are three simple steps that you need to follow to use the SIP calculator.

Step 1:First,  you need to input the monthly SIP amount you want to invest. If it is a mutual fund that you are investing in, you can invest a minimum of Rs. 500 every month, but for many other investment schemes, the minimum amount of investment allowed id Rs. 1000 per month.

Step 2: The next step is to estimate the possible rate of return on your investment. The process of estimation is done on the basis of the track record of the fund (in the past few years).

Step 3:The third step is the investment tenure in case of the SIP maturity calculator. In other words, it is important to decide the period of time you want to stay invested. In most cases, SIPs allow a minimum tenure of 6 months. However, it is advised to stay invested for as long as possible to get a higher return on investment.

SIP calculators are available online and free of cost. Hence, investors can use it anytime they want. They can even change the variables several times to see the different return they can receive from their investments. However, while choosing an SIP calculator, you must make sure that the calculator takes into account the capital gains tax or the probable inflation rate. However, very few calculators use these two very important parameters while making the calculations.

Features and Benefits of the SIP Calculator 

  • Investors are allowed to make investment plans fast. Without the help of an SIP calculator, it would be difficult to perform a complex number crunching like this. The formula is so complex you are likely to get errors if not done without the help of a calculator. Hence, it is better to use SIP calculators as they give accurate results within seconds. 
  • SIP calculators are available online and absolutely free of cost. Therefore, though one can develop his/her own SIP calculator by using Excel, it will be time-consuming. So, it is better to use a calculator available online for more accuracy and convenience. 
  • SIP calculators make investment easier for both beginners and experienced investors. New investors are greatly benefitted by SIP calculators as it helps them get the accurate results to estimate their future return. 
  • SIP calculators have a user-friendly interface and the investor has to provide only a few variables to get the results (fast and accurate).  That is why mutual fund managers and brokers advise the use of SIP calculators and also promote them for the benefit of the investors. 

Top Five SIP Investment Funds and their Performances

Fund Name

3 Year Returns (%)

5 Year Returns (%)

Birla SL Frontline Equity Fund(Growth)

23.15

18.16

SBI BlueChip Fund-Regular(Growth)

26.25

20.24

BNP Paribas Mid Cap Fund(Growth)

33.82

24.58

Mirae Asset India Opportunities Fund-Regular(Growth)

27.45

19.44

Franklin India Prima Plus Fund(Growth)

27.17

18.56

 

If you are planning to invest through an SIP and a have high to moderate risk appetite, you can invest in the five funds above.  Before investing, always use a reliable SIP calculator to understand the probable return of your investment. However, if you are new in the field of investment, and have low-risk appetite, start with debt funds. Gradually, with experience, start investing in equities for a higher return on your investment.