Systematic Investment Plan (SIP) is a method of investing in mutual funds wherein an investor chooses a mutual fund scheme and invests a the fixed amount of his choice at fixed intervals. SIP investment plan is about investing a small amount over time rather than investing one-time huge amount resulting in a higher return.
Once you apply for one or more SIP plans, the amount is automatically debited from your bank account and invested in the mutual funds you have purchased at the predetermined time interval. At the end of the day, you will be allocated the units of mutual funds depending on the NAV of a mutual fund.
With every investment in a SIP plan in India, additional units are added to your account depending on the market rate. With every investment, the amount being reinvested is larger and so is the return on those investments.
It is at the discretion of the investor to receive the returns at the end of the SIP’s tenure or at a periodic interval.
Let us understand with an example. Suppose you want to invest in a mutual fund and you have set aside a sum of 1 Lakh Rupees to invest in the same
Now there are two ways in which you can make this investment. Either you can make a one-time payment of Rs 1 Lakh in the mutual fund, also known as lump sum investment. Or you can choose to invest via a Systematic Investment Plan or SIP.
You need to start an SIP of a set amount. Say Rs 500. Then Rs 500 will be deducted from your account and auto-credited to the mutual fund you want to invest in, at a certain fixed date every month. This will continue till the time period
SIP investments can be started anytime ensuring minimum risk with the correct suitable scheme plan for the investor. It is very important for the investor to choose the scheme which suits his long-term goals well. Hence, there is no suitable time frame within which an investor should start a SIP investment plan, the sooner the better.
Below are the types of Systematic Investment Plans:
This SIP allows you to increase your investment amount periodically giving you the flexibility to invest higher when you have a higher income or available amount to be invested. This also helps in making the most out of the investments by investing in the best and high performing funds at regular intervals
As the name suggests this SIP plan carries flexibility of amount you want to invest. An investor can increase or decrease the amount to be invested as per his own cash flow needs or preferences.
This SIP Plan allows you to carry on the investments without an end to the mandate date. Generally, an SIP carries an end date after 1 Year, 3Years or 5 years of investment. The investor can hence, withdraw the amount invested whenever he wishes or as per his financial goals.
There are several benefits of investing in SIP over Lumpsum. Some of them are listed below
Let’s see the projected returns using Groww SIP Calculator, to see how much your money grows in 20 years if you contribute 1000 Rs a month, assuming average returns of 10%.
The total amount grows to be Rs 7,18,259 due to the compounding effect.
As shown above, you can use an online SIP Calculator such as one offered by Groww to calculate the projected amount you would get if you start a SIP of a particular amount for a particular time period.[gc-sip-calculator]
Simply use Groww’s SIP Calculator, enter the SIP amount, the time period for which you want to invest in the mutual fund and the approximate return expected. You will get the total investment amount upon completion of the time period. According to how much you want your final amount to be, you can select the appropriate amount to start a SIP with.
Disclaimer: Mutual funds are subject to market risks, please read the documents carefully before investing.
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