This website is purely ACADEMIC in nature and NOT a stock market recommendation service or a tip provider. No live data or feeds are provided and all information is historic only. Information is provided for ease of understanding for the purpose of learning. Accuracy of definitions etc is not mantained. I am not a SEBI or IRDA registered.
Systematic Investment Plan
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- 1 What is SIP?
- 2 Is SIP a financial product?
- 3 How does SIP work?
- 4 Features of SIP
- 5 Mode of SIP
- 6 Duration of SIP:
- 7 SIP in Tax Saving Funds (ELSS)
- 8 What happens when Bank SIP gets rejected?
- 9 How can we change / increase SIP amount?
- 10 SIP Statistics in India
- 11 When does SIP not work?
- 12 SIP and Exit Load
- 13 Related Topics
What is SIP?
SIP stands for "Systematic Investment Plan".
SIP is a systematic method of investing your money in Mutual Funds.
A SIP is a planned approach towards investments and it helps you to develop the habit of saving and building wealth for the future.
The SIP application form is the instruction we give to the mutual fund house to start or stop a SIP.
Is SIP a financial product?
No. SIP is not a financial product. It is just a method to invest your money in Mutual Funds schemes.
How does SIP work?
- Choose a mutual find scheme that you want to invest
- Decide the investment amount and the duration (age)
- Decide the investment frequency (monthly or quarterly)
- As you invest, units are allocated as per ongoing market rate (called NAV or Net Asset Value)
- You will get more units when the price is low and less units when the price is high
- At the end of the exitAge, you can redeem the units and get the maturity amount
- You also have the option to redeem partially and extend the investment further
Features of SIP
- one of the best ways to enter equity market
- helps you to invest as little as Rs. 500/- every month
- helps you to develop the habit of discipline and regular investments
- no need to time the share market
- rupee-cost averaging
- compounding returns - small investments every month can create a big corpus over time
- flexibility in investing. You can increase or decrease your SIP amount
- some funds offer income tax benefits.
Mode of SIP
You can opt for one of the following modes to invest in SIP schemes.
1. Daily 2. Weekly 3. Fortnightly 4. Monthly 5. Quarterly
Duration of SIP:
- Minimum investment duration is 6 months
- Maximum investment duration is as long as you want to invest. There is no maximum limit on duration
SIP in Tax Saving Funds (ELSS)
- You can opt for SIP in almost all open-ended schemes including Tax savings mutual funds like ELSS (Equity Linked Savings Scheme)
- But, note that every installment amount of SIP will be locked for 3 years
- For example, if you opt to invest Rs. 1,000/- for 6 months, then every investment of Rs. 1,000/- will be locked for 3 years
What happens when Bank SIP gets rejected?
Sir is there any penalty by bank if sip fail due to insufficient fund?
Mutual Fund AMCs generally do not charge any fee or penalty for SIP getting rejected because of insufficient funds in the Bank Account.
However, Banks will use the opportunity to charge you. Usually the penalty will be equal to cheque bounce charges. Rs. 250 + taxes in most cases.
Is it irrespective of sip amount?
Yup. Because the charges are charged by the banker, the penalty will be same irrespective of the SIP amount.
Three consecutive fails in SIP will lead the AMC to stop the SIP. You will receive an intimation about this by email or by a letter.
In case the SIP got stopped, you can re-submit the SIP application again as if it is a fresh SIP.
HDFC Mutual Fund allows till six consecutive installments not honored or the Bank Account [for OTM / ECS (Debit clearing) / Direct Debit / Standing Instruction] is closed and request for change in bank account is not submitted at least 30 days before the next SIP Auto Debit date. (Read http://www.hdfcfund.com/CMT/Upload/ArticleAttachments/760%20-%20Addendum%20for%20Change%20in%20terms%20and%20conditions%20of%20SIP.pdf)
How can we change / increase SIP amount?
SIP works on the concept of autodebit with the mutual fund and bank.
Hence, to change or increase SIP amount, you need to stop the existing SIP and then give a fresh SIP application form for the new SIP.
There are several alternatives to counter this. But before going to them, let me explain the approach.
Changing SIP amount means that your financial goal has changed. So, think carefully as to why the need to change the SIP has occured.
Now, there are two easy alternatives to increase SIP amount.
1. Keep the existing SIP running. For the incremental amount, invest in the same scheme in SIP for a different date.
2. Keep the additional money that you want to SIP aside and use it to buy in lumpsum every quarterly or so. If you closely track markets on a day-to-day basis, you can invest in market correction times. So market correction or quarterly-basis which ever comes first.
If you still want to change the SIP manage and want to increase / decrease the amount, you have to do these:
1. Stop the existing SIP by giving the SIP Cancellation form
2. Give a fresh SIP form along with the bank mandate (and blank cancelled cheque)
You can stop SIP online if you started the SIP online. Otherwise paper application form will be inevitable.
You can always start SIP online irrespective of having filled paper form earlier or not.
SIP Statistics in India
- As of Feb 2017, Indian do an SIP of Rs. 4000 crore per month in equity SIP.
- This means, Indians will be investing about Rs. 48000 Crore per year into Equity markets.
- Two years ago, the amount was mere Rs. 2000 Cr per month.
- FIIs invested Rs. 20568 cr in 2016. This means, Equity MF SIPs are likely to be similar or more than what FIIs put in.
When does SIP not work?
SIP works on the concept of average. It works in favor of the investor when the markets are volatile or downward trending but not when the markets are single trend only upwards. Since it is the nature of stock markets to be volatile in most cases, it is a good method investing, both in mutual funds and equity shares (provided you are with a discount broker).
SIP and Exit Load
When you start an SIP, the exit load is applicable for each of the SIP transaction.
For instance, if the SIP is done on 1-Jan-2016 and 1-Feb-2017 and so on.
Assume the scheme had a one-year exit load.
Today is 4 April 2017.
So those units that are allotted on 1st of Jan, Feb, Mar and April will not have any exit load but all those units allotted later (for the months of May, June etc.) will carry the load.
- Starting a SIP in MyCAMS
- SIP vs Lumpsum Investments
- Systematic Transfer Plan
- Mutual Fund Websites
- List of Mutual Funds serviced by CAMS
- Starting a SIP with MFU
- Mutual Fund Utilities (MFU)
- List of Mutual Funds with MFU
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