How SIP works in India?

Posted by Shaheen Shaikh on July 29th, 2018

SIP or systematic investment plan has made an investment in mutual fund hassle free. When you sent SIP for mutual fund a certain amount will be deducted from your bank account. That amount will be invested in the mutual fund. SIPs help the investors to bring discipline to their investment, help them be a part of the stock market and give them enough time in the market too. But how does it work? Let’s see.

How does SIP work?

SIP is a flexible and automotive system. Like we said, a certain amount of money will be debited from your bank account and invested in the mutual fund. You will be allocated a certain amount of units according to the ongoing market rate. Every now and then when you invest in money extra units of the schemes are purchased at market price and added to your account. It is no surprise that units are bought at different rates and investors get benefits from rupee-cost averaging.

Power of compounding refers to compound interest; means the sooner you start better will be the returns. If you start investing through SIPs in the early stages of your career you will get much higher returns.

Another part is rupee-cost averaging.

 The market is volatile which is why people hesitate to invest in mutual funds. The rupee-cost averaging will allow you to avoid guessing game which means if you are regular investors your money will buy more units when the market is low and fewer units when the market is high. So the question arises when one should start investing.

When to start?

In an open-ended mutual fund, you can start investing any time you want. All you have to do is fill up the application form and SIP mandate. It takes 10-30 days for the bank to register SIP mandate. Which leads to the next question; how long can we have SIP? Well, the financial institutes generally have a specified period of at least 6 months. However, you can make that perpetual means SIP will continue until the investor asks the financial institute to close it. It is advisable that asset a goal for SIP and continue until it is achieved. A great advantage about SIP is that you can change your SIP investment during the tenure by canceling the existing mandate. In fact, you can have lump-sum investment too.

Why is SIP popular?

1. It helps you to have discipline saving which is really important for future.
2. Every month a fixed sum is put in, without any risk of facing market fluctuations about-unit cost averaging
3. Monthly installments are deducted automatically which helps to inculcate a good habit and makes you more committed towards your investment.
4. SIP is very convenient to manage. You can give instructions to your bank to auto-debit funds of your SIP.
5. It's very flexible and convenient - you can anytime create, update, or cancel SIP anytime
6. It is a hassle-free way of investment as the allocated amount will be withdrawn from your bank account. This gives you the benefit of not missing any monthly installment by sending an instruction to your bank.

To keep it short, SIP is the best way to invest in mutual fund schemes. It is flexible, convenient and simple. With little research, you can find the best SIP investment options. It is truly an excellent way of investment.