What is SIP in mutual funds? How to start SIP online?

Last Updated: 27-Jan-2021

Short Answer

The introduction of Systematic Investment Plan (SIP) in the mutual fund is regarded as one the major breakthrough in the financial sector. It has helped to attract a new class of investors in the sector who were not comfortable to invest a lump sum at a time.

Detailed Answer

SIP in mutual fund first was launched on December 4, 2010, through BSE Star MF platform.

So, What is SIP and why it so much popular among mutual fund investors?

What is SIP? Systematic Investment Plan

Systematic Investment Plan is an investment mechanism offered in open-ended mutual fund schemes. Here, small regular investments are made in a particular MF scheme over a long period of time.

It helps in beating the volatility in the market and accumulate large amount at maturity with the small investments made over the period. The investment mechanism is similar to Recurring Deposit scheme in which one saves with the bank and in SIP, one invests in the market and return percentage is far better than RD.

SIP: Features to know

  1. Investment in SIP can be started with minimum of Rs 500 and then increases in a multiple of Rs. 500.
  1. Flexible intervals with Monthly, Quarterly and Half yearly investments.
  1. Focused method towards investing with ease.
  1. The real benefit in SIP comes through the power of compounding. Small investments made earlier in low price magnifies at the time of redemption.
  1. SIP helps to average out the fluctuations in the market with investments done at different price.
  1. SIP delivers attractive return over a long term investment horizon.

How does SIP work?

SIP works on a simple formula, Start Early with Regular Investments to create wealth.

It is always difficult to time the market correctly to make huge fortunes due to n numbers of factors constantly affecting the market. But with SIP, it reduces the factor of volatility in the investment as it is spread over a long period of time.

The market constantly moves in an up and down direction. Since an SIP invests regularly in the market whatever the market condition is, some investments are locked when prices are low and some at higher prices. Therefore, it helps to average out the volatility and achieve a lower average cost per unit.

SIP Calculator

SIP calculator is provided on different platforms. These are very comprehensive and easy to use. An investor needs to mainly provide three sets of information i.e

  1. Expected saving in a year
  1. Duration of the investment
  1. Expected Return (Normally it is suggested to take between 12-15 percent p.a.).

The chosen SIP calculator will compute the data given and will show the expected return of the investment in a Graph or Table format with expected maturity value.

How to start an SIP?

To start SIP on a particular scheme, an investor has to submit following documents with specific details and mandate.

  1. Investment form with details of the investor and MF scheme
  1. A SIP registration form, in which details like time period of the SIP investment (5y/10y/20y), the amount of the SIP (Rs500/ Rs1000/ Rs5000), SIP trigger date and in which frequency the investment will be made (monthly, quarterly/half-yearly).
  1. A filled up ECS/NACH form in which an investor gives the mandate to AMC to receive funds from the bank account for the SIP amount in the specified trigger date.

How the SIP investment is taxed?

From 1st April 2018 tax on equity mutual funds shall be applicable on LTCG above Rs.1 lakh p.a. @10% without indexation benefit. For equity funds, the period of holding more than 12 months is regarded as long term.

While Debt mutual funds with more than 3 years on investment horizon are taxed at 20 percent with indexation benefit.

Those SIPs which continues until the time one redeems the investment and new units gets added to the investor's portfolio.

For equity mutual fund all those units added in the past one year of the SIP tenure and gains on those added units are taxed under Short term capital gains @ 15 percent. For debt funds, the capital gains arising from the units added in the past 3 years of SIP tenure are taxed @ 10 percent.

SIP Investment: Some Misconceptions Cleared

  1. SIP is designed for small investors only: Fact of the matter is, it is suited best for all types of investors from small investors to high net worth investors.
  1. You should not start SIP when the market is high: It is not true, one can start investment through SIP during any market condition. SIPs are purposed to stay invested in for a long time in which all market phase will get factored in.
  1. Once SIP is started, you cannot stop or change the time-period of investment: It is always suggested to track the performance of investment regularly. One can stop, change or redeem the investment mid-way of the SIP tenure.
  1. One can get better returns from timing the market than committing to SIP: The whole process of SIP is for disciplined investing over a long period of time. Timing the market is a very difficult task and depends on many factors. And the probability of success is very low when you are timing the market to gain huge fortunes.

SIP in Mutual Funds: Conclusion

Investment in mutual funds through SIP is a game changing development for the industry and investors. Moreover, it has helped many small investors to become a part of the system who could not afford to invest a lump sum in mutual funds earlier. In SIP, patience and a right fund will work wonders for the investor in long term.

Now, that you know what is SIP in mutual funds. You are also clear on how SIP works and how to start SIP online. What do you think? Is investing through SIP in mutual funds good?

Tagged With: sip in mutual fundssipsystematic investment plansip in mutual funds
Categories: Mutual Funds
Ask Your Query for FREE, Get quick answers from our FINTRAKK community!
Discussion (0)
Related FAQs
When should your stop you SIPs?

SIPs or a Systematic Investment Plan is a great tool to build money in the long run with a minimum time period of 5-10 years. It offers multiple advantages like a low minimum capital requirement, averaging benefit, formation of investing habits, etc. However, the most adequate time to stop your SIPs is when your financial goals are met or when you feel to change the objective of your investments.

How does 3 year lock-in period work in ELSS while investing via SIP?

ELSS or Equity Linked Savings Scheme is a type of tax-saving investment instrument. It provides returns, similar to equity funds and offers a tax reduction under Section 80C. If you invest in a SIP method, every contribution towards the scheme will be considered as a separate investment and will incur a 3 year lock-in period.

What is difference between Fixed Deposit vs Mutual Fund? Meaning

Fixed Deposit (FD) are saving tools offered by banks to deposit lump sum amount for a fixed period of time on a higher interest rate than saving accounts. Mutual funds are investment products which pool money from numerous small investors to create a fund.

What are best investment options for salaried person in India?

For a salaried class, there are many places where investments done. Know the best investment options for salaried person in India. The best investment options for a salaried person are Gold investments, PPF account, national pension scheme, ELSS, and fixed deposits.

What is Fincash Review? Login and invest in SIP in Mutual funds

Fincash is a yet another online investing platform that was started in 2016 or you can call it a fintech startup. Having raised funding, it has grown fast to give tough competition to other market players.

What are benefits of SIP in mutual funds investment?

SIP stands for Systematic Investment Plan. You can invest a fixed amount of your choice and set a specific date for investing your money monthly, bi-monthly or fortnightly.

Is a Demat account required for SIP?

No, SIPs doesn't require any demat account. One can start SIP by completely minor documentations such as KYC, FATCA etc.

What is the most reliable and safest way to build wealth?

Building wealth always seems to be a farfetched idea if you want it quickly. However, if you wish to build it legally, then there are different ways to build wealth. Check them out.

Who is the Mutual Fund Regulator in India?

Mutual funds are regulated by SEBI ( Securities and Exchange Board of India). SEBI regulates mutual funds as 1996 Mutual fund regulation. SEBI is also the regulator for wider capital and securities market in India. SEBI was formed in 1988 as a statutory body and drives it powers from SEBI act 1992.

Is Demat account required for SIP?

No, a demat account is not required for SIP or Systematic Investment Plan because a SIP can be purchased directly from an AMC (Asset Management Company), a third-party financial advisor, your bank, or other online platforms.