All you need to know about Systematic Investment Plans(SIP)

  • Rudri Rawell
  • May 24 2021
  • 8 minutes
Share on

One of the many attractive investments available today are mutual funds. They are considered to be one of the most favoured investment products by almost all age groups and have gained a huge investor base in our country over the years. The inherent advantages of mutual funds of providing higher returns at relatively lower costs and risks makes it a very lucrative investment option. One of the biggest advantages of mutual funds is the facility to invest in small portions rather than making a lump sum investment. These smaller portions are known as SIP. 

Read more to get all the details on SIPs in mutual funds.

What is SIP?

Savings and investments are a crucial part of every person’s earnings. Experts believe that at least 20% of your monthly income should be towards building your retirement fund or such investments that can help you on a rainy day or meet any goal. However, it is often difficult for any person to shell out large sums of money to make such investments. This is where SIPs in mutual funds have an advantage. 

SIPs or Systematic Investment Plan is the system where the investor can invest a fixed sum of money in specific funds selected by them. Investors can choose the frequency of investment through SIP as per their convenience. This frequency can be daily, weekly, monthly, or quarterly, the amount is debited from the designated bank account of the investor directly at the set date for the period of investment. 

What are the types of SIP?

After knowing the basic meaning of SIPs, the next important thing to know is the type of SIPs. Given below are the details of the same.

1. Flexible SIP

Flexible SIP is one of the most common types of SIPs in the market. The investor can increase or decrease the amount of SIP easily based on the availability of funds.  

2. Perpetual SIP

Perpetual SIP, as the name suggests, is when the SIP is started without mentioning any end date. While starting an SIP, the investor has to mention the start date and the end date. If the end date is not mentioned, the sip will continue till the time the investor expressly requests to terminate such SIP. The investor can essentially stay invested as long as they wish

3. Trigger SIP

SIP in this case is dependent on certain factors that would trigger an upwards or downwards effect in any SIP. Such triggers can be the level of NAV or index level or other similar factors. The investor can mention the end date by submitting a written application to the AMC. 

4. Step-Up SIP

Step up investment is another form of SIPs where the investor can increase the amount of SIP on a periodic basis. This increase can be set annually or half yearly or at the discretion of the investor. The SIP will then increase by the amount fixed at the set level. Such SIP provides the chance of increasing the investment of the investors with the increase in their income levels.  

What are the benefits of SIP?

Investing in mutual funds has many benefits, some of such benefits are discussed below.

1. Rupee cost averaging

The most effective way of investing in mutual funds is investing when the markets are low and redeeming the units when the markets are on a high. Investors have the possibility to earn high returns in such cases. Investors can purchase the units at different rates and thus have the opportunity to average out the per unit cost of the units. 

2. Compounding power

The advantage of compounding is best gained through SIP. The returns get reinvested and it will benefit in getting more units for the investor. SIPs are, thus, best suited to investors that plan to stay invested for long term.  

3. Suitable for investors with low investment budget

SIPs are an ideal investment mode for investors that have a limited investment budget. Such investors can start an SIP with amounts as low as Rs. 500 (Rs.100 in some cases) and can gradually build their portfolio. This helps in meeting long term financial goals with ease without putting a huge hole in the investor’s pocket.

4. Inculcates financial discipline 

Another advantage of SIPs is inculcating a systematic habit to save and invest in the investors. It is quite common for many people to keep pushing the investment requirements to another day till the time it is often too late. Through SIPs the investor does not need to remember the investment date, the amount is regularly auto-debited through the account till the time the investor decides to stop the SIPs. 

5. Tax benefits

SIPs provide tax benefits too when the investment is made in tax savings schemes like ELSS. The maximum deduction available to any individual investor is Rs. 1,50,000 under section 80C

6. Easy to stop, increase or decrease

Investors have the benefit of increasing or decreasing the amount invested through SIP. For this, the investor will have to contact the fund house or can start a new SIP for an increased amount with the same fund. 

How to invest in SIP?

Investment in SIP can be done in many ways. Investors can invest in the fund directly through the AMC or through partner banks or directly through their Demat Account. Investors have to first select the mutual fund that they want to invest in after careful research and analysis. Another important factor is to determine the investment budget or the financial goal to be achieved. 

Investors can start SIPs through the online mode by simply following the above steps and then uploading a few basic KYC documents as required by the fund guidelines.

Another easier way of investing in SIPs is through the Finity. The steps for the same are mentioned below.

  • Investors have to simply download the app from Google Playstore or Apple Store.
  • Next step is to login to the app using username and password generated at the time of registering with the app. 
  • After that, the investor will have to select the fund that they want to invest in after careful research and analysis. 
  • Then click on ‘Invest’ and enter the amount to be invested in the next page under the tab ‘Enter Amount’ and then select ‘Continue’
  • After paying the amount through any of the payment modes offered, the investor will have successfully started an SIP.

Top funds to invest through SIPs

Some of the top funds currently that can be invested through SIP are mentioned below.

Axis Bluechip Fund

Axis Bluechip Fund is a large cap fund from the fund house of Axis Mutual Fund. Some details of the fund are mentioned below.

ParticularsDetails
Fund managerMr. Shreyansh Devalkar
Launch date5th January 2010
Minimum SIP investmentRs. 1,000
Expense ratio1.82
RiskLow

The returns provided by the fund as on 15th May 2021 are tabled below

Period6 months1 yr3 yrs5 yrsSince launch
Returns11.41%46.44%13.76%15.36%12.64%

ICICI Prudential US Bluechip Equity Fund

This fund was initiated in the year 2012 and is a thematic fund from the fund house of ICICI prudential Mutual Fund. Some details of the fund are mentioned below.

ParticularsDetails
Fund managerMs. Priyanka Khandelwal
Launch date6th July 2012
Minimum SIP investmentRs. 100
Expense ratio2.23
RiskHigh Risk

The returns provided by the fund as on 18th May 2021 are tabled below

Period6 months1 yr3 yrs5 yrsSince launch
Returns42.73%21.85%18.68%17.98%

Axis Midcap Fund

This fund is a midcap fund which was launched in the year 2011 from the fund house of Axis Mutual Fund. The details of the fund are mentioned below.

ParticularsDetails
Fund managerMr. Shreyansh Devalkar
Launch date18th February 2011
Minimum SIP investmentRs. 500
Expense ratio1.85
RiskHigh

The returns provided by the fund as on 18th May 2021 are tabled below

Period6 months1 yr3 yrs5 yrsSince launch
Returns22.04%56.99%16.49%17.59%18.14%

L&T Balanced Advantage Fund

This is an open-ended hybrid fund launched in the year 2011. This fund was launched from the fund house of L&T Mutual Fund. Some details of the fund are mentioned below.

ParticularsDetails
Fund managerMr. Vihang Naik
Launch date7th February 2011
Minimum SIP investmentRs. 500
Expense ratio2.10
RiskLow

The returns provided by the fund as on 18th May 2021 are tabled below

Period6 months1 yr3 yrs5 yrsSince launch
Returns5.49%23.19%7.51%8.38%10.93%

ABSL Tax Relief 96 Fund

This is an ELSS fund launched from the fund house of Aditya Birla Sun Life Mutual Fund. This fund was launched in the year 1996. Some details of the fund are mentioned below.

ParticularsDetails
Fund managerMr. Ajay Garg
Launch date29th March 1996
Minimum SIP investmentRs. 500
Expense ratio1.98
RiskAverage

The returns provided by the fund as on 18th May 2021 are tabled below

Period6 months1 yr3 yrs5 yrsSince launch
Returns12.43%43.38%6.29%11.81%23%

Conclusion

SIPs are a popular investment mode in mutual funds that have only increased over the years. According to the data provided by Association of Mutual Funds in India, the total number of new SIPs registered in the month of March 2021 is to the tune of Rs. 9,182 crores. Investors can take the benefits of flexibility, low investment budget, timely investments and achieve their financial goals with lesser strain. 

FAQs on SIPs

1. Is there a lock-in period in SIPs?
When investment is done in an open-ended mutual fund, then there will be no lock-in period for the SIP. if the investment is done in ELSS funds, the minimum lock-in period of 3 years is applicable on SIPs too. 

2. Is investment through SIP better for long term investment?
Yes. Investors get the benefit of reinvested returns as well as protection against short term market volatility.

3. What is the difference between SIP and mutual funds?
It is a misconception that SIPs and mutual funds are different investment products. However, SIPs are just a mode of investment in mutual funds.

Share on
Similar Blogs