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SIP or a Systematic Investment Plan is a mode of investment that has garnered a lot of interest among investors. The plan allows you to invest a fixed amount of money in a mutual fund on a monthly basis. This regular investment helps you benefit from rupee cost averaging. In simple words, it helps you ride the positives and negatives of the market. When the market is down, you can accumulate more units, which ensures that your portfolio value swells when the market is up again.
It must be noted that the duration for a SIP doesn’t mandatorily hold good for a month. In fact, you can opt for different schedules. You can either opt for a weekly, monthly or even quarterly interval for your mutual fund. Most of the asset management companies allow you to set up an automated system, under which the installment amount is deducted from your account directly, thereby, ensuring an added level of convenience and one less thing for you to worry about.
This smart way of investing will help you achieve your short-term and long-term financial goals with a lot more conviction. SIP’s are also flexible, thereby allowing you to tinker the installment amount for better optimization.
As mentioned, a SIP is a systematic investment plan. Depending on your needs and requirements, you can either set it up for a weekly, monthly or quarterly frequency. The ability to set up different frequencies offers an added level of discipline and convenience. To set up a SIP, you would need to communicate with your AMC or asset management company or any third-party vendor from whom you do your investments.
Most of the AMC’s or third-party vendors have SIP mandate forms available on the website. You just have to download and fill up the forms and deposit it. In fact, you can avail online services which let you set up SIP in a matter of few minutes. With the help of your debit card or Aadhaar card or Net Banking, you can activate a SIP.
Post this, you can opt for a SIP for any mutual fund that you wish to have. The AMC or third-party vendor will let you select a mutual fund and the frequency with which you wish to start your SIP. You also have the option to select a date on which the payments will be made. When the time comes, the AMC will deduct the money from your bank account. And depending on the NAV of the mutual fund for that specific day, units will be allotted to you.
Let us consider the following example. You wish to set up a SIP for INR 2000 per month for a mutual fund of your choice. Let us assume, you opted the 5th as the date for the installment. After you have set up the SIP, on the 5th of every month an amount of INR 2000 will be deducted from your bank account towards your mutual fund. The units allotted to you will be based on the NAV for the 5th of that month. There is a possibility that the 5th could either be a working day or a holiday. If it is a working day, the NAV at the close of the market will be considered. And if it is a holiday (public holiday or Saturday or Sunday), the NAV for the next working day will be considered.
Quite a few investors or potential investors have misconceptions when it comes to SIPs. You can think of a SIP merely as a mode of payment. Investors can either invest lumpsum amounts or opt for SIPs to invest in a fund of their choice. But if you want to choose the best mutual fund to invest via SIP plans, it is obvious that you must pit some plans against a few parameters.
Since there are loads of asset management companies and mutual funds to choose from, it can be a bit cumbersome. To make things easier for you, here are some effective parameters which will help you filter the best mutual funds.
Funds which have shown exemplary performance during the past 3 to 5 years horizon.
If Research organization or rating agency has given a mutual fund a rating of 4 or above.
A mutual fund has received CRISIL rating of 1 or 2.
When you scan mutual funds based on the above parameters, only a handful come to the forefront. Once you have a shortlist, you can finalize a fund or funds based on your personal preference. Of course, there are lots of categories of mutual funds; thus you can exercise the same for all. At the same time, these are not the only parameters which will help you secure the best mutual funds.
There are a few additional things that you need to consider. Fortunately for you, we have done all the hard work on your behalf. Should you decide to go the SIP route with any of the following mutual funds, you can expect healthy and strong returns in the future. But before we get to the actual funds, it is important that you figure out various financial goals.
Identifying financial goals is the first step in the entire planning process. Depending on whether these goals are short-term goals, mid-term goals or long-term goals, you can pick up mutual funds. Here are the four major schemes that you can opt for your mutual funds.
When you opt for a SIP, the installment amount will be deducted from your account. You can think of it as an EMI. This adds discipline to your investment and ensures that there is a continuous addition of units to your portfolio. Since you invest on a regular basis, you can easily ride out any fluctuations in the market. If the market is down, you can get more units for the same price. If you haven’t already, it is time to get a SIP and secure your finances for the future.