Systematic Investment Plan is popularly known as SIP that provides an option to start investing from a very small amount regularly in a preferred mutual fund. An SIP will deduct a fixed amount from the investor's linked bank account every month, thus investing it in the preferred mutual fund. For many investors mostly who are monthly wage earners and not involved with personal business, it is a convenient option. Not always it is possible for them to invest a lump sum amount at a time, rather a systematic monthly investment allows them to choose the same mutual fund, but one can stop the SIP or redeem the investment any time. An SIP can be started with as low as Rs. 500 per month, and the Net Asset Value (NAV) of the mutual funds is updated daily.
However, SIP is a kind of a fixed financial discipline for the long run, with regular intervals. Like in any mutual fund scheme, SIP investors too are required to be patient to gain long-term profits, as the market changes every day. Intensive research about the past performances (at least last 3 years) of the particular fund is needed. In SIP, a certain number of fund units is purchased corresponding to the amount of investment and can be benefited from both bullish and bearish market trends. When the market will be down, the investor usually purchases more fund units and vice versa. This will reduce the 'cost per unit' in the long run.
Why SIP is suggested?
Large-cap funds invested in blue-chip companies with stable performances are better recommended than mid-cap and small-cap funds, as the former is less resilient than the two others. However, A large-cap scheme is recommended to a conservative equity investor, a Flexi cap is recommended to a moderate investor, while mid and small-cap funds are recommended for aggressive investors who stepped with a better risk appetite than others. For the investors who are starting new in the field, it will help them to get a season with the new system, and later they can move into other options.
Also, SIPs do not always depend on the market situation, if it is booming or sinking. Starting a small amount of investment is a stepping stone of a habit. SIPs generally have 3 years lock-in period which will get the maturity in stages, so the investor can track it always and have a better understanding of the funds for the future, and systematically realize which one is giving a better return. Also, SIPs are mostly recommended to new investors as these mitigate the risk factor than other investment options and they will also offer a consistent source of income. Withdraw at any time is an additional benefit for them if the investor is preferred security more. Additionally, the investor can put a Standing Instruction (SI) to the fund house against the auto-debit of money from the linked account.
How can one start SIP?
Starting an SIP is an easy procedure. Having a PAN card, correct address proof, passport size photo, and checkbook, coupled with Know your Customer (KYC) are typically needed to start a SIP investment. On the website of the fund house, one can choose a SIP after completing the KYC norms. One has to register on the preferred website and create a new account and fill in the personal details and contact information. A new user name and password will have to be selected. Then carefully the bank account details will have to be put from where the monthly payment will be deducted for the SIP. Then the scheme should be selected and start the investment any time after the confirmation of submission.
SBI Bluechip Fund, ICICI Prudential Mid Cap Fund, Nippon India Small Cap Fund, Parag Parikh Flexi Cap Fund are some of the most popular SIP portfolios in India that are preferred by new investors along with traditional players.