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What is Systematic Investment Plan (SIP)

Systematic Investment Plan, abbreviated as SIP, is an investment option through which an investor can contribute a fixed amount at regular intervals towards a preferred mutual fund scheme. This fixed sum is deducted from the investor’s bank account every month.

How Does SIP Work?

Saving from our monthly income proves to be a challenge, considering the myriad expenses some of which are necessary, while the others are for luxury. A Systematic Income Plan encourages an individual to keep aside a certain, be it even small ,sum of money, enabling the investor to build a corpus through forced savings. It is a recurring investment of a certain amount and date of the month, as per the investor’s choice.

The payment towards an SIP can be made online through auto-debit, NEFT, Internet Banking and UPI. The auto-debit option enables investors to choose the date of debit according to their convenience, so that the chosen SIP amount is automatically debited on the selected date. For instance, if the chosen date is 15th, the SIP amount will be auto-debited on the 15th of every month. It saves them from the hassle of making online payments themselves. All an investor has to do is to choose a date when they are sure that there will be sufficient funds in the bank account to prevent an auto-debit failure. Insufficient balance in the bank account at the time of auto-debit leads to the bank charging a hefty penalty.

When the SIP amount is paid, the fund house allocates a specific number of units of the mutual fund scheme as chosen by the investor, as determined by the prevailing NAV (Net Asset Value) of the scheme. The scheme units increase with every SIP installment. The downward the market performance, the more will be the units that the investor will be able to buy.

SIP also offers investors the flexibility to increase the investment amount to earn additional units and thereby earn better returns.

How Can I Start Investing in SIP?

Investing in SIP mutual funds can be started by following these simple steps:

  • Know your investment objectives: Have a clear idea about the financial goals that you want to achieve by investing in an SIP – the expected corpus that you want to build, the preferred tenure, etc.
  • Make an informed choice: Consider your monthly income, so that your SIP investment is aligned to your financial goals. These will enable you to make a conscious decision regarding the mutual fund scheme and monthly instalment.
  • KYC Procedure: Once you have taken a final decision regarding the SIP investment amount and mutual fund scheme, you have to fill up the KYC (Know Your Customer) Form with required personal details like name, contact number, permanent residential address, etc. and submit it along with documents as proofs of your identity and address and passport size photographs. Once the details submitted by you are verified by the fund house, your monthly SIP will get started.

FAQs on What is Systematic Investment Plan?

What is SIP plan in mutual fund?

Systematic Investment Plan, abbreviated as SIP, is an investment option where an investor can contribute a fixed amount at regular intervals towards a preferred mutual fund scheme. This fixed sum is deducted from the investor’s bank account every month.

Which mutual fund is best for SIP?

There is no mutual fund that is universally the best for all investors. The SIP that will be the most suitable for an investor depends on his/her investment objectives, risk appetite and several other parameters, which differ between investors.

How can I start investing in SIP online?

Here are the simple steps you need to follow to invest in SIP online:

  • Complete the KYC process that is mandatory for mutual fund investments. Visit the official portal of your chosen fund house or you can also visit CAMS KARVY online, which is a Registrar and Transfer agency. Fill up the online form with required personal details like name, mobile number, date of birth, permanent residential address, etc. Subsequently, upload identity proof, address proof and a passport size photograph to complete the online eKYC.
  • Once the form and documents have been submitted online, and your identity has been verified, you can start investing in SIP mutual fund.