A Systematic Investment Plan (SIP), is a way of investing
money in mutual funds, where one invests a fixed amount of money,
automatically at periodic intervals.
The amount of
investment can start with as low as Rs 500 and one can choose different
periods varying from –Daily, weekly, bimonthly or monthly.
Most popular
intervals chosen by 95% of the investors is monthly investing. This is
an easy way to create bigger wealth with small regular contributions,
on a long term.
Features of SIP
- Periodic
Investing- Investor can choose different periods varying
from –Daily, weekly, bimonthly or monthly. However as per market
data 95% of investors have done SIP with monthly contributions.
- Auto debit- There is no
need to issue payment every month in SIP. One has to give direct
debit mandate to Mutual fund company or post-dated cheques and
bank account get debited on the dates selected by the investor.
- Flexibility- One can close
SIP any time as per convenience. For this simple communication has
to be made to Mutual fund company.
- Investment- Investment
can be made in Equity or debt mutual fund and has to be decided at
the start if SIP.
- Maximum duration
of SIP-
SIP can be of any duration. One can also choose perpetual SIP,
where one can invest on a periodic basis till communication to
stop investment by the investor to mutual fund house.
Benefits of SIP
- A habit of
saving-
SIP inculcates a habit of disciplined saving in the investors. An
individual always thinks that one should start investing but never
makes disciplined investing on a monthly basis. In SIP, there is
no need for manual transfer or funds every month for investment.
Investment amount is automatically picked from a bank account and
invested. When an investor invests through SIP, he/she is
committed to save regularly.
- Timing the
market-
The common wish of an investor is to buy low and sell when the
market is high. But its nearly impossible for a layman investor to
time the market. In fact usually we sell low and buy when the
market is high. With SIP, one can invest automatically at all levels
of markets. This helps to average the cost of investment without
getting into markets actively.
- Goal Planning- Investor can
plan for personal financial goals with SIPs. Suppose I have three
financial goals at different times, I can plan for 3 SIPs for each
individual goal based on duration and risk for each goal. For long
term goals, I can invest in equity funds and for near-term goals I
can invest in balanced funds.
- Flexible- Investor can
discontinue investing in SIP at any time. Further, one can withdraw
the investment any time during SIP period without discontinuing
it.
- Tax-Free
Long-term Gains- All long-term gains on SIP in equity funds
are tax-free. There is not the tax on long-term capital gains of
equity funds.
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