Invest Smartly with SIPs

With SIPs, an investment of even Rs 1,000 a month can potentially grow to almost Rs 10 lakh in the long term.
For example, let’s assume you start a monthly SIP of Rs 1,000 in an equity scheme and where you expect to earn a return of 12% per annum. This table below shows how your wealth can potentially grow with time*.

*This is for illustration purposes only. This example assumes a fixed and consistent rate of return. Mutual fund returns are not guaranteed and can fluctuate based on market trends. Past performance may or may not be sustained in future and is not a guarantee of any future returns.

This growth is thanks to the power of compounding. When you invest in a mutual fund SIP plan, you potentially earn returns. If these returns are reinvested, you can potentially generate further returns on these. This phenomenon of earning returns on returns is known as compounding. As your investment base keeps growing each time you reinvest your returns, the potential growth of your investments can accelerate, creating a snowball effect.

As you can see, with SIPs, even small but steady investments have the potential to build wealth over time. And the earlier you start, the better it is.

Investing in mutual funds is not difficult or expensive. SIPs give you the freedom to invest as much as you like at a frequency that suits you.

Disciplined investing: Once you set up an SIP, the instalment is debited from your bank account at your chosen frequency – daily, weekly, monthly etc. It’s a one-time process that can help you reap lifelong growth opportunities.

Professional management: Once you invest in SIP, investment experts do the rest. Each scheme is overseen by a fund manager, who designs and manages your portfolio based on their expertise.

Rupee-cost averaging: With rupee-cost averaging in SIPs, you can focus on your long-term goals without having to time the market. SIPs do the work for you.
In an SIP, a fixed amount is invested at regular intervals. So, you purchase more units when markets are down and fewer when they are up. Over time, this typically reduces your per-unit price – which means you earn more if the market goes up. This is known as rupee-cost averaging.

Flexibility: You can start a new SIP with an increased amount when your income increases. You can also decrease the amount, stop your SIP, or pause it if unexpected expenses come up.

A Systematic Investment Plan (SIP) allows you to invest a fixed amount at regular intervals in mutual funds. When you invest through SIP, your money is used to purchase units of the mutual fund based on the prevailing Net Asset Value (NAV). The NAV, which is based on the market value of the securities in a portfolio (among other factors) is the per-unit price of the fund on any given day. For example, if you invest Rs. 5,000 and the current NAV is Rs. 50, you would purchase 100 units of the fund.

Since SIP investments are made at regular intervals, you end up buying more units when the market is down (lower NAV) and fewer when it’s up (higher NAV). This systematic approach, called rupee cost averaging, helps reduce the overall cost per unit over time. By investing in SIP in mutual funds, you can take advantage of market fluctuations without needing to time the market.

Mentioned below are some of the important features of SIP investment:

Flexibility: SIP in mutual funds cater to your financial needs. Unlike traditional investments, you can adjust the investment amount easily based on your financial situation and goals. You can also opt for SIP step-up to get closer to your investment objectives.

Convenience: SIP investment plans automates the investment process. A fixed amount is automatically deducted from your bank account each month and invested in your chosen mutual fund scheme. No manual transactions are needed.

Pause or stop option: Life can be unpredictable, and there may be times when you would need to temporarily stop your SIP in mutual funds due to financial constraints. SIPs allow you to do this without significant penalties.

Avoiding Market Timing: SIPs don't require you to predict market movements. Instead, they promote regular and disciplined investing at fixed intervals, reducing stress and encouraging a long-term perspective.

Here’s a step-by-step guide to how to invest in SIP:

Research: Identify a mutual fund for SIP that aligns with your investment objectives, risk tolerance, and time horizon. Compare different schemes based on asset allocation, expense ratios, and the experience of fund managers.

Registration: Sign up with your chosen mutual fund house. Complete the registration process by submitting your KYC documents (e.g., Aadhaar Card, PAN Card) and bank information. You can also seek the help of a distributor for mutual fund SIP investment.

Select amount/frequency: Choose the investment amount for your SIP and the frequency of contributions (monthly, quarterly, etc.). Note that minimum investment requirements can vary between funds.

Set up bank mandate: Establish a bank mandate for your SIP to automate contributions. This authorization enables the mutual fund provider to deduct SIP payments directly from your bank account on schedule.

While investing in SIP can help you build long-term wealth, it is essential that you consider the below-mentioned things before starting your SIP investments:

Financial goals: Before you start an SIP investment plan, define your financial goal, whether it's a vacation, a big purchase, or a retirement corpus. Set a clear timeline.

Investment amount: Determine how much you need to invest each month to reach that goal. You can use the SIP calculator above for help.

Risk appetite: Make sure your SIP investment aligns with your risk-appetite. Also, once you invest, make sure you regularly review and adjust your plan if your financial goals or circumstances evolve.

Regular review: Once you invest, make sure you regularly review and adjust your plan if your financial goals or circumstances evolve.

Investment horizon: Consider a long investment horizon, especially for equity schemes, as gradual and consistent investments have the potential to build wealth over time.

Liquidity needs: Ensure that the investment suits your liquidity requirements. Check whether the fund is open-ended, close-ended or has a lock-in period.

Consistency: Choose an investment amount and schedule that you can commit to, without disruptions.

Automate payments: Automate your SIP contributions to ensure timely payments and financial discipline.