A child’s piggy bank is the classic example of saving small but on a regular basis that becomes a big amount in long run. SIP or Systematic investment plan is a piggy bank to start saving small for large corpus in long run.
SIP is also beneficial for a major population who says ‘We earn a lot or sufficient money but we do not understand where the money goes at the end of the month/year’. Cutting down the expenses and making a note helps to track the expenditure. Once you have the control of the expenditure you can start to save small on monthly or quarterly basis through SIP (Systematic Investment Plan)
What is SIP?
Systematic investment plan or SIP’s do not demand a huge amount of money at once, and SIP’s can be at regular intervals be it monthly or quarterly. Plus SIP’s also gives you the liberty to choose the amount you want to allocate every month. It can be Rs 500 to Rs 5000 as per your choice and capability. SIP will help you to create long-term wealth. SIP is a good way to invest regularly for brighter future. It is a disciplined way of investment where the money grows and grows subject to the market risks but you get handsome returns in long run. ‘Slow and steady wins the race’
The method of investment in SIP is similar to the Recurring Deposit (RD) in a bank. In RD the amount gets invested for a specific time same as SIP, the only difference is, in SIP the amount gets invested in mutual fund scheme or equity scheme and thus SIP is subject to the market risks.
How do start SIP online?
- Keep all the documents handy: document like aadhar card, PAN card, address proof (utility bill, driving license, bank statement, rental agreement in case of rental house)
- Recent Passport size photograph
- Bank details and of course a computer or a laptop with internet connection
- Fill in KYC: You need to fill in your basic details like name, age, DOB, mobile no, address etc as it is mandatory to comply with KYC requirements. (Know Your Customer) You will receive a video call to verify the physical presence. Keep your documents handy during the video call for verification.
There are many mutual fund houses which provide an ekyc facility which will only require your aadhar card, however, an investment limit of Rs 50,000 per annum per fund house.
- Once you finish the above steps you can visit their website (fund house) and register yourself by filling up a simple form for creating online transaction account. Keep your bank account details handy to fill in your bank details. Mobile phone handy as one-time password (OTP) would be sent to your phone to verify your account.
- Once your account is created you can log in to the website select the mutual fund scheme, chose the date for your SIP and submit your request. You have started systematic investment plan online.
Top 10 Mutual Fund companies in India with total schemes and schemes option
|FUND HOUSE||TOTAL SCHEMES||SCHEME
|ICICI Prudential Mutual Fund||275||1321|
|HDFC Mutual Fund||124||734|
|Reliance Nippon Mutual Fund||206||887|
|Aaditya Birla Sun Life Mutual Fund||123||675|
|SBI Mutual Fund||128||579|
|UTI Mutual Fund||224||1302|
|Kotak Mahindra Mutual Fund||75||329|
|Franklin Templeton Mutual Fund||44||234|
|DSP Black Rock Mutual Fund||52||350|
|Axis Mutual Fund||53||242|
Benefits of SIP
- Small Investment: Small investment at a regular interval is possible and this is a major advantage of SIP. There are some investments that allow daily SIP or even with Rs 100/- A Fixed amount gets invested on a regular basis, even if the SIP starts with a small amount, but after a period of time, a lump sum amount gets collected. This secures the future and maintains your financial health. SIP’s are tax savings.
- Systematic and Discipline: As the name suggests SIP is a disciplined form of an investment. Every month on a specified date the amount specified gets deducted. All you have to do is to maintain sufficient balance in your bank account. Especially on the SIP installment date.
- No need to Time the market People looking for investments options are always in a dilemma that if it is a right time to invest or should I wait for the market to drop. SIP resolves this worry as it is a periodic investment which happens across market cycles. Systematic Investment Plan is subject to the market risks and the fund value goes down but it reduces the burden on you from the market movements.
- Goals can be achieved (long-term) for instance buying a home, car, education for your kids or even a dream vacation is executed well by SIP’s. If you wish to buy a car in 5 five years or you want to plan a foreign vacation in 3-4 years you can plan and choose your Systematic Investment Plan accordingly.
- Take advantage of Rupee Cost Averaging: When the market is low you get more units as it is the right time to buy and when the market is high you get less number of units. This way the investment gets averaged out and as mentioned earlier you are free from the market fluctuations.
- Compounding Effect: The earlier you start investing in SIP you will receive more benefits in long run. For example, if you invest Rs 1000 for 30 years. You will get a return of Rs 30 lakhs (@ 12% rate of interest)
However, if you start same investment 5 years later you will receive lesser returns than which you started 5 years earlier.
As per economic times, dated 3rd Jan 2018, there is a 50% rise of SIP in one year from Jan 2017 to Dec 2017
Points to be remembered during your SIP
Keep these points handy to refer while planning your systematic investment plan. As mentioned earlier start saving small at the earliest as your future is as important as your present.