SIP In Mutual Funds

SIP is precisely a way of investing in a mutual fund. A mutual fund is an instrument which you invest in. Therefore, you can invest in mutual funds either through a one-time investment or through an SIP.

Systematic Investment Plans (SIPs) are suitable for people who want to have a disciplined format of savings every month. Since SIPs happen through monthly installments, they inculcate a forced habit of savings as well as help in monthly budget planning.

However, if one has periodical cash inflows which need to be invested, a one - time investment plan needs to be worked out for the same. This is especially relevant for annual bonus inflows that come for salaried individuals as well as entrepreneurs and freelancers who do not have a fixed monthly income.

This totally depends on how much surplus are you able to save every month and what financial goals do you need to plan for. While there is no thumb rule for SIPs, one should ideally invest at least 20% of his or her monthly income through SIPs in mutual funds.

Most funds let you invest a minimum of INR 500 per month in a SIP. Some funds however, allow a minimum monthly investment of INR 1,000. The idea is to enable you to invest small amount of money at fixed intervals.

In an SIP, a fixed amount gets deducted from your bank automatically every month. This amount gets invested in the funds selected by you. Since this happens through monthly installments, you end up buying mutual funds every month at varying prices. This helps you average out your purchase price.

The key benefit of an SIP is that it helps in generating large amount of wealth as disciplined investment over long periods of time lets compounding work its magic.Also, one key thing to note here is that periodic declines in the stock market is actually good for an SIP investor as you end up buying more units at lower prices.To understand more about how SIPs work - read here

Ideally, you should invest in systematic investment plans till the time you continue earning. You can build substantial amount of wealth over the long-term by doing two things – investing a considerable part of your monthly earnings and continuing to invest over long periods of time.However, if you are unable to commit for that long, you can choose minimum 6 monthly installments for your SIP investment online.

SIPs in equity mutual funds are beneficial if your money stays invested over very long periods of time. This is because equity needs to go through full market cycles to deliver good returns (remember what we said about buying more units at lower prices during market corrections).However, for debt mutual fund SIPs, you can choose any tenure depending on the tenor of the debt instruments being held by the mutual fund. SIP in Ultra Short Term Debt Funds are akin to parking surplus in a savings account. You can withdraw any time without any charges.

Realistically, nothing is safe. There is risk involved when we step out of home. Even when we cook. All we can do is stay alert and take only as much risk as we can deal with. In case of SIPs, you need to figure out if your portfolio is suitable for you. This is done through ascertaining your risk profile and ideal asset allocation . As long as someone is looking after your portfolio every year, SIPs are a safe way to create wealth. And of course, SIPs are safer than investing a lumpsum amount as purchase price gets averaged out.

SIP investments in Tax Saving Funds (ELSS Funds) offer tax benefits. Check out our Tax Saving ELSS Calculator to know how much tax you can save through SIPs in ELSS Mutual Funds.