Systematic Investment Plan

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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.

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 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?

Usually 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. Not the AMC.

Three consecutive fails in SIP will lead the AMC to stop the SIP. You will receive an intimation about this. You can re-submit the SIP application again.

How to stop sips from mycamsonline ?

MyCAMS allows starting and cancellation of SIP for most schemes but not all.

To cancel an ongoing SIP, Login to your MyCAMS at https://www.camsonline.com/MyCAMS

Click on the Systematic Transactions tab at the top

Locate the SIP Scheme for which you wish to cancel

Press the Cancel Button opposite to the scheme.

If MyCAMS does not allow cancellation of SIP online, you need to fill an appropriate SIP Cancellation form from the Mutual fund website.

Some AMCs such as DSPBR allows white paper written request for SIP cancellations while others insist on using their standard format.

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.

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).

Related Topics

• SIP vs Lumpsum Investments