Systematic Investment Plan – How does it Work?
- Anumeha Singh
- Jun 23, 2017
- 3 min read
The systematic investment plan is a quick and easy investment option that a person can choose when looking to make a mutual fund investment. If you want to invest your money in equity funds and save on tax payments at the end of the financial year, then you can opt for an SIP to make the process of investing an even easier one for you.
The SIP or systematic investment plan is a methodical way by which you can make your investments in mutual funds. To know more about how this works, read on.
Monthly Investments with Returns @ 12% pa 1000 2000
For 5 Years 0.82 lacs 1.65 lacs
For Ten Years 2.32 lacs 4.65 lacs
Well Known Features of Systematic Investment Plan
What the systematic investment plan entails is debiting money into a bank account which is later used for mutual fund investment. Once the money is debited, you as a customer will be given a number of investment units, based on net asset value or NAV.
To get a systematic investment plan started is not difficult at all as all you need to do is simply be a mutual funds customer. Once you have applied for a mutual fund investment and your application has been approved, the SIP process will be put in motion for you.
When you invest with SIP you get to divide your investment sum into small denominations of money. If you invest 5000 INR in your mutual fund for instance, you get to pay only 500 INR or 1000 INR as a part of your SIP, thus preventing your mutual fund investment from becoming too expensive for you to maintain.
The SIP payments have to be carried out on a monthly or on a quarterly basis depending on what is convenient for you. Most investors opt for a monthly investment as it helps them to keep track of their investment.
What are the Benefits of Systematic Investment Plan?
Brings some Discipline to Mutual Fund Investment
There are a number of benefits that are associated with using SIP when investing in mutual funds, the foremost being organization. You get to give your mutual fund investment some structure and discipline when you opt for SIP as you have to make a scheduled payment of 500 INR or 1000 INR in every month or in every financial quarter.
Subjects Investors Less to Market Risks
When you opt for SIP then you get to be less vulnerable to the market risks that mutual fund investments are often characterized by. Since you pay a fixed sum on a regular basis as investment, you don’t have to fear about experiencing enormous losses that are otherwise very typical of ELSS funds and can often make investors go broke.
No Expenses for Starting SIP
There are no charges that you need to incur in order to start an SIP. The systematic investment plan is something that you can start without paying any money at all, as all you need to do to get this started is to simply be a mutual fund customer.
Easy to Initiate SIP Process
The process of getting an SIP in place is also a very easy one. When your mutual fund application is approved, the company whose mutual fund you are investing in will take charge of initiating the systematic investment plan on your behalf.
No Penalties for Stopping SIP
There are no penalties associated with stopping an SIP either. You can stop Your Systematic Investment Plan at any point of time and there is no money, even a small sum that you will be expected to pay for doing so.
Makes Mutual Fund Investment Easy and Flexible
Systematic investment plan makes a mutual fund investment very easy on the pocket. Since you do not have to invest more than 500 INR at a time, unless you want to, the mutual fund investment is not going to be financially arduous for you.
No Age Restrictions
There is no age limit that you have to adhere to when you decide to use a systematic investment plan for your mutual fund investment. You can be as young as 18 years of age or you could be over 60 in order to be able to use SIP for your mutual fund investment.