One of the most popular investment options when it comes to mutual funds is known as Systematic Investment Plan or SIP. The reason that SIP has earned its name in recent years and is considered by large, small and medium investors is based on the fact that it promises lucrative returns when invested for a long term. The investor can invest in regular intervals; the frequency of investments may be monthly, weekly or quarterly.Read more
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The policyholder has to contribute a fixed amount each month towards investment in mutual funds which shall be auto-debited from the policyholder’s account. One of the advantages of investing in a SIP is that it is flexible. The policyholder can freely increase the amount of investment or discontinue it at his wish anytime.
In this article, we will learn about SIP investments and how to start investing in SIP. Also, we should take a look at the uses of SIP Calculator and how it can give you an estimate of returns that should accrue to you after a fixed term.
Systematic Investment Plan or SIP is a popular method of investment in India. It is ideal for small investors who would like to invest small amounts each month than invest a lump sum in mutual funds. The investor may choose to invest every week, monthly or quarterly. A fixed amount from the investor’s bank account is invested in buying a certain number of units at the current market rate, and more units are added under the investor’s name every time he invests an amount. SIPs promote the habit of small savings and investments among small investors.
There are myriad reasons one should consider investing in SIP, more because it pays off high returns in the long term with the guarantee of substantial growth in investments and involves fewer market risks as compared to other equity investments. Also, SIP investment is considered a balanced investment. More units are bought when the price is low and fewer units are purchased as the price goes higher and therefore, the cost per unit, in the long run, is lower than the actual cost. It is a smart choice for those who want a deduction on their income tax returns.
The list of benefits an investor may avail from investing small amounts regularly in SIP runs long. Here are a few points to brief you with the benefits of using SIPs:
Ease of Usage- SIP is easy to understand and use. Not many terms and conditions are laid down regarding SIP investments, and therefore, the ones who are new to investing in mutual funds may consider the transparency of this investment and start with it easily. All that the investor is required to do, is to choose one among the various mutual fund schemes available and auto-debit a fixed amount from the bank account into investment each month. It is easy to register for SIPs online which is a fast and hassle-free process. It takes about three weeks for the application to get validated by the officials after which the investor gets free access to his mutual fund's accounts.
Ideal for cautious investors- This investment is ideal for investors who aim at greater gains in the long term and wants to avoid the turbulence of the market and thus, the risk. The investor is not required to make any lump sum payment and only have to pay small amounts regularly, the minimum amount for the investment being Rs.5000. The amount may also be brought down to Rs. 500 in a week or month. Thus, the mutual fund investor need not worry about the budget. Even investors who do not have a regular source of income may invest in SIP.
A flexible investment- SIP is highly flexible, and it is up to the investor to continue with the fund or not. In case the investor is unable or unwilling to invest further, the plan can be discontinued. There are also no penalties if the investor decides to stop going on with the investment.
No charges for opting for SIP- The investor does not have to pay any additional charges and all investments are used to buy units which add up under the investor’s lot. There is no extra deposit you need to make for using the SIP mutual fund scheme.
No burden on investors- While investing in SIP you don’t have to worry about being a share market professional. It is okay even if you have little idea about investments and mutual funds because investing in SIPs free you from any speculation regarding volatile markets. All you have to do is invest regularly and be rest assured that your investment is making a steady growth.
If you are still pondering on why you should invest in SIP consider your future goals. For instance, for someone who is 25 years old and wants to buy his own house and have his own car and planning to save up for the future contingencies as well in the next 20 years shall not benefit much only from investing in bonds. The reason is quite simple- inflation would be higher, and the returns shall not be sufficient to meet all his goals. But, being a small and cautious investor, he does not want to invest in equity lest there should be a high risk of losses. What are the options the 25-year-old has to invest in so that he is assured of the safety of his investments along with hefty returns that allow him to meet his goals in the forthcoming years? The answer is SIP which is a safe and lucrative option at the same time.
The initial steps of getting started with SIPs involve setting a specific financial goal. Take in considerations your biggest initiatives that require financial funding in the long term. For example, Mr. X’s long-term goals might include the acquisition of capital to start his own restaurant in the next 20 years. Mr. Y may wish to invest to have enough funds to finance higher education for his children in the best universities. Similarly, considering your future goals, you may draw an estimate of your financial requirements which is the very first step of investing in SIP. The investor has to set a timeline next. The investor must choose investment tenure though he/she can choose to discontinue whenever he/she wishes to. Use a SIP Calculator to know how much you should invest regularly as to get the amount enough to meet your future goals after the tenure of investment ends. You may also choose to consult a financial advisor who shall guide you with a suitable investment plan for your need.
Here are the three steps that you need to go through to start with investing in SIPs online:
Arrange the necessary documents- There is a need for the investor to fetch just the basic documents to start investing in SIP such as his PAN Card, driving license or utility bill that may qualify as an address proof, a chequebook and passport size photograph. Aadhar number of the investor is not mandatorily required but providing Aadhar details shall simplify entire the process. Having a high-speed internet connection is necessary so that the entire process shall continue smoothly.
Comply with your KYC (Know Your Customer) - As an investor, you must complete your KYC requirements in the first place. You may opt for the e-KYC channel which is provided online by some companies. The basic information is required to be provided like name, contact number, date of birth, address etc. The process requires you to upload a soft copy of PAN card and your address proof. The process is completed with a video call to confirm the investor’s physical existence. The process may also be completed providing the Aadhar details which eliminates the need for a video call. This only a one time process and the investor go through it just once even if he invests in mutual fund schemes of different companies.
Start Investing in SIP Online- After you have successfully completed your KYC, you may register yourself as a SIP investor with the fund house that you choose. All you have to do is click on ‘Register Now’ button or search for ‘New Investor’ link and fill the form with all the details it requires. The investor needs to choose a username and password to transact online. The bank account details of the investor shall also be a requirement in order to set up the auto-debit of a fixed amount at regular intervals chosen by him. One may start investing by logging into your SIP portal with the username and password and selecting the desired scheme. It takes about 30-40 days for SIP to start.
With the use of a SIP calculator, the investor can compute the absolute value of the amount he invests after a certain period of time. The investor needs to provide information on the accumulated amount, the investment period and the rate of returns. It shall give you a clear estimate of the amount you should invest (say monthly) to your total earnings accrued to you over the investment period. The steps that the investor needs to follow while using the calculator are:
1: The investor needs to provide details on the monthly amount that he can invest in SIP. The minimum amount that may be invested in case of mutual funds is Rs. 500/month. For other investment schemes, the minimum amount goes up to Rs. 1,000.
2: The calculator calculates the estimated returns on the basis of the rate of returns from the particular investment scheme. To derive the possible rate of returns, we need to analyze a figure based on the fund’s track record.
3: The last step in the process requires the investor to provide details of his tenure of investment. The minimum tenure of investment in SIP is six months, but it is recommended that the investor invests in SIP for a long term so as to gain higher returns.
SIP calculator is available online and is provided by almost all the fund houses. All you have to do is log into the website of the fund house you desire to invest in and search for SIP calculator. You can use SIP Calculator for free. You may also explore various options you regarding the amount of monthly investment by changing the variables in the calculator. Something that a user must keep in mind while using a SIP calculator is that the output accounted is after taking into consideration the possible rate on inflation and capital gains tax. You may also use a lump sum calculator in order to know the maturity amount of a one-time investment by the investor. The lump sum calculator also requires the investor to provide details on the number of investments, the estimated rate of return and the tenure of investment to calculate the total amount due to him/her at the end of the tenure.
Now that we know what a SIP calculator is and what it is used for, we can sum it up in pointers that count the benefits of using a SIP calculator:
1: The calculator is simple to use and is a quick process to derive the estimated returns that would be accrued against the small monthly investments. Therefore, investors can strategically make their investments plan to meet their financial goals in the long term.
2: There are no extra details required other than the details about the investor's monthly investments, the tenure of investments and the rate of return on the fund they invest in. Thus, the interface is user-friendly.
3: The calculators can be used online and free of any charges.
4: The calculators make it easier even for the first time investors to know the nooks and cooks of SIP investments.
SIP is the most dependable investment instrument on which most small investors depend in order to mobilize their small savings and invest them to meet their future financial goals. Invest in SIP and get yourself a guarantee of fulfilling your goals in the future even when inflation elevates.
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