Systematic Investment Plan (SIP) is the style of investment in which the investor is supposed to select a specific mutual fund as per his/her preference and invest the uniform amount of capital in that mutual fund on the periodic basis. Systematic Investment Plan involves the concept of bit-wise investment spanning over a long duration instead of directly investing a lump sum amount of capital in one go. An investor through Systematic Investment Plan invests small amounts of capital either on monthly basis or quarterly basis or half-yearly basis for a long duration of time leading to generate higher returns in the long run. The Systematic Investment Plan is a smart way of investing that enables an investor to invest from small amount of money to considerable amount of capital as per the choice, requirement and financial goals of the investor. Although the systematic investment plan is also surrounded by the market and event driven short term risks, yet the selection of the appropriate mutual fund in terms of experience of fund manager, safety of capital and returns of the fund reward the investors’ patience and perseverance in the long run.
After having applied for single or multiple Systematic Investment Plans, the equivalent amount of investment is automatically transferred from investors’ bank account and get invested in the mutual funds that investor have bought at the fixed time duration. By the end of the day, the investor gets the units of mutual funds assigned relying on the Net Asset Value of a mutual fund. Along with every investment in a Systematic Investment Plan in the country, extra units are infused into investors’ account based on the market value. With each investment, the capital reinvested is enormous and thus is the return on investments. This is at the disposition of the investor to obtain the returns at the end of the Systematic Investment Plan’s term or at regular intervals.
Although there are a variety of Systematic Investment Plans are available across the market but some of the popular types of Systematic Investment Plans are mostly preferred by the investors. Some of those popular types of Systematic Investment Plans are discussed here:
Systematic Investment Plan has multiple benefits which are listed below:
While selecting the mutual funds for Systematic Investment Plans, investors should set some selection criteria which facilitates the selection of Best Mutual Fund. First of all, the Size of the Asset under Management matters the most. Generally, the asset size of Rs. 500-600 crore is assumed to be the benchmark size for picking the mutual fund. Though the lower assets size mutual funds can also be opted for investment but that comes with the additional and unforeseen quality risks which investor is willing to take. Second factor is the life of the Systematic Investment Plan. If the tenure of the Systematic Investment Plan is long, it is treated as the ideal investment. If the capital stays invested as long as possible, it grows over the period of time and the power of compounding effect multiplies the capital to result into a significant sum at the end of the tenure of the investment. Thus it is recommended to invest the capital on periodic basis even if that is a little amount. And also to stay at least invested for long time in case investing on periodic basis does not work out. Third factor is the reputation of the fund manager. The name of the fund manager is extremely crucial while deciding on the mutual funds as their quality and ability to handle such large funds could be assessed based on their reputation in the market. The fund manager can be an individual or an institution. Their experience to tackle the uncertainties, identifying the appropriate investment opportunities, managing hefty investment funds and maneuver through volatility of the market plays as a determining role in picking the right mutual fund. Forth factor is the self-evaluation of the risk tolerance, financial objectives and requirements. Based on which the selection of the Mutual Funds depends. As one can go for those mutual funds where risk levels and financial objectives match with investors’ risk-return profile. Fifth and final factor is analyzing the fund quantitatively which is by examining various aspects of the mutual funds such as previous years’ performances, expense ratio, financial ratios, exit load and lock in period.
Systematic Investment Plan can be initiated anytimemaking sure risk is low with the appropriate scheme plan for the investor mapped to investor’s risk-return profile. It is very crucial for the investor to select the scheme which achieves his long-term goals and meets his financial objectives effectively. Thus, there is no single time duration within which an investor is supposed to start the systematic investment plan. The sooner, the better.
A Systematic Withdrawal Plan enables an investor to withdraw their investments from mutual funds scheme in a systematic and a phase wise manner. This withdrawal could be done on monthly, quarterly, semi-annually or annually basis.
Systematic Investment Plan (SIP) is the style of investment in which the investor is supposed to select a specific mutual fund as per his/her preference and invest the uniform amount of capital in that mutual fund on the periodic basis.
After having applied for single or multiple Systematic Investment Plans, the equivalent amount of investment is automatically transferred from investors’ bank account and get invested in the mutual funds that investor have bought at the fixed time duration. By the end of the day, the investor gets the units of mutual funds assigned relying on the Net Asset Value of a mutual fund. Along with every investment in a Systematic Investment Plan in the country, extra units are infused into investors’ account based on the market value. With each investment, the capital reinvested is enormous and thus is the return on investments.
Though there are a variety of Systematic Investment Plans available across the market
but some of the popular types of Systematic Investment Plans are:
1) Flexible Systematic Investment Plans
2) Step Up Systematic Investment Plans
3) Perpetual Systematic Investment Plans
4) Trigger Systematic Investment Plans
SIP has multiple benefits such as Ease of investment, Rupee Cost Averaging, Power of Compounding, Profitable Alternative, Capital Protection, Financial Discipline and Financial Goals.
When the capital is invested consistently in a disciplined fashion over a long period of time. The wealth multiplies itself and the compounding factor of returns set in leading to higher returns.
The following factors affect the selection of best mutual funds for SIPs:
1) The Size of the Asset under Management
2) The life of the Systematic Investment Plan
3) Reputation of the Fund Manager
4) Self-evaluation of the risk tolerance, financial objectives and requirements
5) Analysis of various factors such as previous years’ performances, expense ratio,
financial ratios, exit load and lock in period.
There is no single time duration within which an investor is supposed to start the systematic investment plan. The sooner, the better.