What Is SIP?

As a beginner, analyzing market trends, finding profitable securities, and managing your investment can be tedious. You might not even be confident about investing a lump sum even if the possible returns were high. If so, a Systematic Investment Plan or SIP is the way to go.

Today, SIPs are the most popular mode to invest in mutual funds. In April 2022, the Association of Mutual Funds in India reported that the number of mutual fund SIP accounts stood at 5.39 Crores! So, why do so many people prefer investing in mutual funds through SIPs? Well, unlike lump sum investing, you can invest a smaller, fixed amount periodically. Thus, you can start investing without waiting to accumulate a large sum, stressing your wallet, or cutting your expenses. And this is just one of the many benefits of SIPs.

Let us now explore how SIPs work, what benefits they offer you as an investor, and how you can get started.

How do SIPs work?

When you ‘set up’ an SIP for a fund, your SIP amount gets debited from your account every month (or year, or quarter, depending upon your investment frequency.) But where does this money go? This money gets invested in the mutual fund. This means you are purchasing mutual fund units with that amount at the current Net Asset Value (NAV).

SIPs are flexible in terms of contribution amounts and investment period. As per your needs, you can choose to set up any of the following SIPs:

1. Fixed: It is the most basic plan you can pick. You have to select the amount, investment period, and amount that will automatically deduct from your linked account at regular intervals.
2. Top-up: If you expect to see an increase in your income over time, top-up SIP might be the right investment plan. You can routinely increase your investment amount.
3. Perpetual: As the name suggests, perpetual SIP does not have fixed tenure. This SIP type is the best option if you don’t want to renew your SIP periodically.

The benefits of SIPs

• Easy and safe investment: SIPs are ideal for investors with limited market knowledge. You don’t have to track market movements and figure out the right time to invest your money. Instead, you have expert mutual fund managers to guide you. With auto-deductions, you can sit back and let your investment grow.

• Start early: You can start with an amount as low as Rs. 500. So, you don’t need to wait to accumulate a large sum to make an investment.

• Rupee-cost averaging: With a fixed SIP, you invest the same amount each time, regardless of market conditions. So, if the markets are down, you will be allotted more units, and when they are up, you will be allotted fewer units. This approach lowers the average cost per unit over the long term.

• Take advantage of compounding: Your contributions are recurring and automated. It is ideal for maximizing your returns. Your investment, along with returns, is automatically reinvested, i.e., you earn interest on your returns.

Getting started with SIPs

Thanks to technology, investing in mutual funds through SIPs is a breeze. You can start your SIP through a fund house or AMC’s online portal or mobile app. But what if you want to start multiple SIPs in several funds of different AMCs? You can do so through a trusted third-party investment platform, such as Tata Capital’s Moneyfy Website or app.

Moneyfy provides you with a convenient interface to get started on your investment journey. It has built-in goal-based investment tools that empower you to make the most of your invested money. Download the app, complete a 3-step online KYC, and you’ll be investment-ready in just a few days. Then, you can:

• Assess your risk profile
• Set your investment goals
• Browse mutual funds tailored to your requirements
• Use the SIP calculator and determine your SIP amount
• Start investing conveniently
• Keep track of your SIPs and manage your portfolio
• Stop or top-up existing SIPs, and start new ones

It’s that easy. So, what are you waiting for? Register now and build your portfolio right from your smartphone.