A Systematic Investment Plan (SIP) helps you invest a predefined amount of money into mutual funds at periodic intervals (daily, monthly, quarterly, etc.).
A SIP works quite like a recurring bank deposit, on the basis of periodic and consistent investments. The investor can opt to have the investment amount auto-debited from his bank account, via Electronic Clearing Service (ECS) based on standing instructions, and mutual fund units are allocated to the investor accordingly. The number of units procured depends on that particular scheme’s current Net Asset Value (NAV).
SIP Investors benefit from not having to time the market as the investment is staggered over a period of time. Investors also benefit from Rupee Cost Averaging. Over a period of time, regular investment through SIPs helps investors purchase units at varying price points that leads to averaging down the cost of purchase. You also get the advantage of professional fund management at a fraction of the cost. Another key benefit is the power of compounding of your investments. Even a modest monthly investment of Rs. 1,000 through a SIP, assuming returns of 15% p.a. over 20 years can grow into nearly Rs. 15 lakh as a result of compounding.
Also Read: SIP and ELSS – A winning combination
Investing in SIPs online has become quite prevalent over the past few years due to its convenience, ease of use and transparency.
Types of Systematic Investment Plans
There are mainly 4 types of SIP Plans:
- Top-Up SIP: These allow you to increase your investment amount at steady intervals. You can progressively increase your investments as you become more prosperous over time.
- Perpetual SIP: If you do not define the end date at the time of starting your SIP, it means that you have opted for a perpetual SIP. It simply means that your periodic instalments will continue to be invested until you give specific instructions to stop them. When investing in a perpetual SIP, it makes sense to review your portfolio and its growth periodically.
- Flexible SIP: As the name suggests, flexible SIPs give the investor the flexibility to increase or decrease the periodic investment amount as per their cash flow. While you still specify a monthly fixed investment amount when starting a flexible SIP, you have the option of changing (increasing or decreasing) the investment (easier if you invest in SIP online). This could be done in case you have a windfall in that particular month, or perhaps need to direct your finances elsewhere in case of an emergency.
- Trigger SIP: Usually opted for by investors who have a fair understanding of the financial markets, trigger SIPs enable you to set a trigger for automatically redeeming and/or switching from one scheme to another if the market becomes volatile. They also enable investors to move easily between debt and equity funds within the same fund house.
Also Read: Step-up SIPs to Create Long Term Wealth
Why invest in SIP online?
Online SIPs give investors the flexibility and freedom to manage their investments from anywhere at any time. As mutual funds are an easy route to the financial markets and portfolio management is undertaken by experts, investors only need to familiarize themselves with online interfaces to get started.
As online SIP tools become easier to use and more transparent in their working, investors are finding it increasingly convenient to invest in mutual funds using SIP online. SIP online has made managing your investments hassle-free as well, as you don’t need to contact your agent each time you want to check up on your funds’ performance or for undertaking any transaction (buying, selling, redeeming, stopping, switching, topping-up etc.).