Systematic Investment Plan A Smart way to reach your financial goals
Systematic investment plan (SIP) is one of the biggest blessings for an investor. It aims at wealth creation by investing small sums of money at regular intervals in a pre-defined mutual fund scheme allowing rupee cost averaging with the added benefit of power of compounding.
It inculcates the habit of disciplined investing that helps you to plan for your future – child’s education, buying a house, daughter’s wedding etc Financial Goals…
1. What is SIP ?
SIP stands for Systematic Investment Plan. SIP is an organised way of investing regularly in a mutual fund. When you set up an SIP with any mutual fund, your account is debited a fixed amount every month. Over a period of time, your investments accumulate and keep growing.
2. Is SIP safe or not?
SIP is a very safe method to invest in mutual funds. You do not need to worry about timing the market when investing via SIP. In SIP, the price you pay will be an average of high and low of monthly SIP Investment. Thus, you will not pay a high or overvalued price for the mutual if you invest via SIP. This is called rupee cost averaging.
3. Can SIP be stopped?
Yes. Unlike fixed deposits (FD) and recurring deposits (RD), you can stop an SIP any time you want. After stopping paying for an SIP plan, you can either choose to redeem your money from the mutual fund or continue to remain invested in the fund.
4. Can SIP save tax?
If you use SIP to invest in tax saving ELSS mutual funds, you can save tax too. You can claim tax deductions of up to ₹1.5 lakh under Section 80C by investing in ELSS mutual funds.
5. Can SIP amount be reduced / increased?
The procedure to do so is very complicated. But there is a solution to this problem. You can simply start a new SIP in the same fund with the increased amount or cancel current SIP and start a new SIP as per your wish.
6. Does SIP have a lock in period?
If you are investing in an open-ended mutual fund, there will be no lock-in period for your SIP as well. It completely depends on the mutual fund you invest in. Some mutual funds, do have a lock-in period. ELSS mutual funds have a lock-in period of 3 years. Many other mutual funds have lock-in periods too.
7. Is SIP better than RD?
SIP has the capability to give much higher returns than RD. The return you get on your SIP depends on the mutual fund you invest in.
Debt funds usually give much better returns when compared to RD and are considered low risk too. If you can take more risk, you should try setting up and SIP in higher risk equity mutual funds.
8. Is SIP good for long term?
Yes. In fact, it is better to invest in SIP for the long term. Instead of waiting and accumulating money to invest, you start investing whatever amount you are able to save. This way, your money is always invested.
Not just that, by investing for the long-term, you are ensuring that short-term market volatility does not affect your investment.
9. Is SIP and mutual fund the same thing?
SIP is a method used to invest in mutual funds. You can invest in mutual funds in two ways: lump sum and SIP. When you invest lump sum, you put in a large amount of money in a mutual fund in one go. In SIP, you invest smaller amounts of money on a regular basis – usually every month.
10. Which SIP to invest
Which SIP you invest in depends on your needs. If you are willing to take risks, you can check out small and mid cap mutual funds. On the other hand, if you want moderate risk, you can check out large cap mutual funds. You can also check out debt mutual funds if you want to be exposed to very low risk.