SYSTEMATIC INVESTMENT PLAN ( SIP )
SYSTEMATIC INVESTMENT PLAN - SIP - AN IDEAL SAVING TOOL
SYSTEMATIC INVESTMENT PLAN - BASICS
Generally Systematic Investment Plan ( SIP ) is referred to investment vehicle offered by Mutual Funds allowing them to invest small amounts in periodic intervals instead of single lump sum payment . ( To know about Mutual Fund click here ) . In the scheme a fixed amount of money is paid by the investors through their standing instruction to their bank accounts periodically or through ECS ( Electronic Clearing service ) and invested in a specified mutual fund. The investor is allocated a number of units equivalent to the Net asset value on the date of payment . Every time a sum is invested, more units are added to the investors account. Thus in this strategy , an investor goes on buying the mutual fund in regular intervals for a specific period at different NAV or price . This strategy has twin advantage. First one is , it allows to invest in small amounts to buy a desired mutual fund which helps small investors , middle class . For example , a salaried investor can set standing instruction on monthly basis with installments affordable for him to pay every month . Over the years , he may be able to acquire desired amount of the mutual fund . Second important advantage is , he acquires the mutual funds at different prices depending up on NAV at the date of each remittance . It will help him to average out his investment cost by getting more units when markets are low and lesser units when markets are higher .
MORE INDIANS ARE TAKING SIP ROUTE FOR INVESTMENT
Dated 16.06.2018 : Newspaper report suggests that more and more Indians are are investing through Systematic Investment Plan and the amount collected has reached an all time high of Rs 7,304 crores in the month of May 2018 . Monthly collection of SIP has increased over the years from Rs 1,206 crores in March 2014 , to Rs 2,719 crores in March 2016 to Rs 7,304 crores in May 2018 . Overall SIP collection rose to Rs 67,190 crores in 2017 -18 from Rs 43,921 from the previous year .
It is reported that Equity mutual funds and Balance Mutual funds are the preferred investment channel for the investors .
One of the reasons attributed to increase in mutual funds is the gradual decrease of returns in other avenues of investment like bank deposits , gold and real estate .
Dated 16.06.2018 : Newspaper report suggests that more and more Indians are are investing through Systematic Investment Plan and the amount collected has reached an all time high of Rs 7,304 crores in the month of May 2018 . Monthly collection of SIP has increased over the years from Rs 1,206 crores in March 2014 , to Rs 2,719 crores in March 2016 to Rs 7,304 crores in May 2018 . Overall SIP collection rose to Rs 67,190 crores in 2017 -18 from Rs 43,921 from the previous year .
It is reported that Equity mutual funds and Balance Mutual funds are the preferred investment channel for the investors .
One of the reasons attributed to increase in mutual funds is the gradual decrease of returns in other avenues of investment like bank deposits , gold and real estate .
Advantges for a retail investor .
1. AFFORDABLE : Makes investment in mutual funds affordable for small investors . One can invest every month a small portion of his savings for purchase of MF
2. DIVERSIFIED :Such purchase of units in MF makes your investment diversified as each mutual fund invests such amount in diversified portfolios. It is equivalent to purchasing various stocks, financial instruments in small quantity by investors themselves . For example if one invests Rs 1, 000 in a mutual fund which invests in 20 large cap stocks , a total of Rs 1,000 gets invested proportionally in 20 stocks which an ordinary investor can never do in stock market in such small quantities due to lot size of investments in each stock .If an investor invests in 5 mutual funds and if each mutual fund invests in 20 different stocks , it is equivalent to investor buying 100 stocks every month . By choosing mutual funds investing in different categories of financial instruments like bonds , stocks or gold etc , one can make his portfolio well diversified .
3. VOLATILITY PROOF : As units are purchased over a period in regular intervals , say a month , units are acquired at various prices prevailing on each day of payment , short term volatility is avoided . Thus cost of investment gets averaged out .
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2. DIVERSIFIED :Such purchase of units in MF makes your investment diversified as each mutual fund invests such amount in diversified portfolios. It is equivalent to purchasing various stocks, financial instruments in small quantity by investors themselves . For example if one invests Rs 1, 000 in a mutual fund which invests in 20 large cap stocks , a total of Rs 1,000 gets invested proportionally in 20 stocks which an ordinary investor can never do in stock market in such small quantities due to lot size of investments in each stock .If an investor invests in 5 mutual funds and if each mutual fund invests in 20 different stocks , it is equivalent to investor buying 100 stocks every month . By choosing mutual funds investing in different categories of financial instruments like bonds , stocks or gold etc , one can make his portfolio well diversified .
3. VOLATILITY PROOF : As units are purchased over a period in regular intervals , say a month , units are acquired at various prices prevailing on each day of payment , short term volatility is avoided . Thus cost of investment gets averaged out .
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Risks NOT COVERED
1. MARKET RISKS :Mutual Funds carry all the investment risk of the class of investment they make in . For example , MF investing in equities will carry risks associated with investment in equities while MF investing in Bonds will carry the investment risks of the Bonds . Hence investment made in MF through SIP will also not escape the associated risks of investment made by individual mutual funds . When purchase price is averaged out during the period of investment , MF will be redeemed on maturity at the price prevailing then . Hence if markets have fallen at the time of maturity , investments made can not escape from the loss .
2. EFFICIENCY RISK : Mutual funds are managed by fund managers of issuing company . Return of investment on MF depends on the efficiency of the funds manager apart from market movement . Hence investment in MF carry efficiency of investment risk also
3. PROFESSIONAL CHARGES : Investment also carries professional charges of AMC and investor has to bear the charges irrespective of the efficiency of the manager .
2. EFFICIENCY RISK : Mutual funds are managed by fund managers of issuing company . Return of investment on MF depends on the efficiency of the funds manager apart from market movement . Hence investment in MF carry efficiency of investment risk also
3. PROFESSIONAL CHARGES : Investment also carries professional charges of AMC and investor has to bear the charges irrespective of the efficiency of the manager .
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SMALL FINANCE BANKS PAYMENT BANKS
UNIFIED PAYMENT INTERFACE BHARAT BILL PAYMENT SYSTEM
BHIM APP AADHAR
e-INSURANCE Account ( eIA ) SWIFT
CLICK ON THE SUBJECT TO GO TO THE PAGE
ALTERNATIVES FOR systematic investment plans
A small investor has similar opportunities , like SIP , provided to invest his savings in other investment vehicles by Banks and Insurance companies . Commercial banks offer Recurring Deposit schemes ( RD )where in a customer can open a Recurring Deposit account with them , give a standing instruction them to transfer a fixed amount every month for a specified period , say 1 to 5 years . Depositor would get interest rate that is paid on a Fixed deposit similar to the period of investment . Similarly Life Insurance companies offer schemes of paying insurance premium every month where subscription cover both Life Insurance and Long term investment .
FOR TAX PLANNING
It some times become difficult to invest all eligible amount to be invested in one go for getting tax benefits at the end of the year . So many Mutual Funds offering ELSS ( Equity linked saving Schemes ) offer SIP facility for the benefit of their customers . ELSS schemes are eligible for tax benefits under 80C . One can utilise such facility for tax saving and to avoid last minute scramble for funds at the end of the financial year . To know about the ELSS Schemes , Go to the last section of this page .
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ABOUT Mutual Fund Issuers in India
Mutual Fund issuers are to be the members of Association of Mutual Funds in India ( AMFI ). One can go to the site of association AMFI (www.amfiindia.com) and find details of the Issuing Company. Click here for the list of mutual fund companies who operate in India .
There are large number of mutual funds available for investment in India . They are issued by many companies with diverse portfolio . It will be difficult for a new investor to select among those which will suit his needs . Even on the face if MFs look good by their goals , strategies and investment models , it is difficult to know how it has translated in to actual investment and the efficiency of the funds manager to harness the benefits . Hence to assist investors , many rating agencies like CRISIL , Value Research , ICRA rank individual funds with regard to past performance in comparison with peer funds . However it must be noted that past performance is no guarantee for future . Further for new funds , investor has to go only with stated objectives and past performance of the funds manger in managing earlier funds .
Click Here to Read PLAN N CREATE YOUR OWN CAPITAL PROTECTED HYBRID FUND IN EASY WAYS
FOR READING ARTICLE TAX ON RETIREMENT BENEFITS , CLICK HERE
PRECAUTIONS TO BE TAKEN WHILE INVESTING STOCK MARKETS , CLICK HERE
FINANCIAL PLANNING FOR YOUNG , CLICK HERE HOW TO LINK AADHAR WITH PAN ? CLICK HERE
FOR READING ARTICLE TAX ON RETIREMENT BENEFITS , CLICK HERE
PRECAUTIONS TO BE TAKEN WHILE INVESTING STOCK MARKETS , CLICK HERE
FINANCIAL PLANNING FOR YOUNG , CLICK HERE HOW TO LINK AADHAR WITH PAN ? CLICK HERE
Tips FOR INVESTING
1 Find out the amount of money you can save every month out of your salary / business and amount you can pay every month without default .
2. Allocate specific percentage to various categories of investment options like Recurring Deposit in a bank , Monthly Insurance premium you have to pay . ( Refer our INVESTMENT page to know various options available ) While Recurring Deposit plan gives a fixed income over the years , Insurance premia covers Life Risk.
4. Invest your allocation to SIP in Mutual funds in at least 5 to 10 different funds , each one investing in different segments . You would spread the risk .
5. Risk of a MF is same as the risk of asset class it has invested . Further they also carry management charges of AMC which will be taken out from the fund irrespective of profitability . If AMC fund managers take bad decisions , risks of the mutual funds may be compounded and it may turn out worse than direct investment . Hence study the objective and class of funds it has invested and the track record of the manager before investment .
6. Set the maturity period of each SIP according to your future requirement of funds for your life goals .
2. Allocate specific percentage to various categories of investment options like Recurring Deposit in a bank , Monthly Insurance premium you have to pay . ( Refer our INVESTMENT page to know various options available ) While Recurring Deposit plan gives a fixed income over the years , Insurance premia covers Life Risk.
- . Mutual Fund Investment is a good option for an small investor who wants to invest in diversified markets but has no time to continuously monitor his investment and who has no knowledge of the intricacies of stock market .
4. Invest your allocation to SIP in Mutual funds in at least 5 to 10 different funds , each one investing in different segments . You would spread the risk .
5. Risk of a MF is same as the risk of asset class it has invested . Further they also carry management charges of AMC which will be taken out from the fund irrespective of profitability . If AMC fund managers take bad decisions , risks of the mutual funds may be compounded and it may turn out worse than direct investment . Hence study the objective and class of funds it has invested and the track record of the manager before investment .
6. Set the maturity period of each SIP according to your future requirement of funds for your life goals .
Where to START ?
AMC websites
Most fund companies offer their products to investors through their websites . If you are a first time investor, you need to approach the fund house or collection centres to submit the application form. You first download the scheme form from the respective website, fill in your details and submit the same along with the initial cheque, photocopy of PAN card and KYC letter. Once you are assigned a folio number along with the PIN, all subsequent transactions in the folio can be done online using your bank account. However you need to have separate account for each AMC .
Broker platfolio
You can also open SIP account through your broker account for stocks , if the broker offers such a facility. The units purchased will be credited directly to your demat account.
Independent portals
There are also independent web portals—FundsIndia , Fundsupermart , Aditya Birla Money —that cater to mutual fund investors, allowing you to open SIP .
Most fund companies offer their products to investors through their websites . If you are a first time investor, you need to approach the fund house or collection centres to submit the application form. You first download the scheme form from the respective website, fill in your details and submit the same along with the initial cheque, photocopy of PAN card and KYC letter. Once you are assigned a folio number along with the PIN, all subsequent transactions in the folio can be done online using your bank account. However you need to have separate account for each AMC .
Broker platfolio
You can also open SIP account through your broker account for stocks , if the broker offers such a facility. The units purchased will be credited directly to your demat account.
Independent portals
There are also independent web portals—FundsIndia , Fundsupermart , Aditya Birla Money —that cater to mutual fund investors, allowing you to open SIP .
DOCUMENTS REQUIRED FOR BUYING MF
1. Application form for opening account
2. KYC form duly filled .
3. Copy of PAN Card
4. Blank cheque
5 . Aafhaar Card
2. KYC form duly filled .
3. Copy of PAN Card
4. Blank cheque
5 . Aafhaar Card
ELSS SCHEMES
Subscription to certain notified securities/notified deposits schemes are eligible instruments under section 80C for claiming deductions from taxable income . One such popular investment is tax saving mutual funds or Equity Linked Savings Scheme (ELSS). In this equity diversified fund , investors enjoy the benefits of capital appreciation as well as tax benefits. With recent positive movements in equity market , more interest is being generated in the public on the scheme .
ELSS is basically an equity based diversified Mutual Fund with a lock in period of 3 years . It has got same risk and reward function of any other equity based mutual fund . While under national saving certificate , funds are locked in a period of 6 years , ELSS has lock in period of 3 years only . One who is willing to take market risk , ELSS is a good option as investment is tax free under 80C as also all the returns . Some ELSS funds have been reported giving good tax free returns over a long period of time . One has to carefully study the past performance of the fund as well as fund manager's performance before investing . As returns or principal is not guaranteed and classified as high risk investment , Risk averse persons may avoid such investment .
ELSS is basically an equity based diversified Mutual Fund with a lock in period of 3 years . It has got same risk and reward function of any other equity based mutual fund . While under national saving certificate , funds are locked in a period of 6 years , ELSS has lock in period of 3 years only . One who is willing to take market risk , ELSS is a good option as investment is tax free under 80C as also all the returns . Some ELSS funds have been reported giving good tax free returns over a long period of time . One has to carefully study the past performance of the fund as well as fund manager's performance before investing . As returns or principal is not guaranteed and classified as high risk investment , Risk averse persons may avoid such investment .
TIPS FOR INVESTING in ELSS SCHEMES
1.. Check your tax rebates from various investments like Provident Fund / Housing Loan / Education loan / Insurance etc and find out whether you have any room left for investing under ELSSS .
2. Check whether you can afford a lock in period of 3 years for the contributions you are going to make in ELSS and do not require the funds for next 3 years .
3. Check whether you are ready to take Risk associated with market volatility and whether you can afford such risk keeping in view of the requirement of funds in future .
4. With above factors in mind and if you are ready to invest in ELSS , then follow the Tips given above for purchasing Mutual funds as ELSS is also a mutual fund .
