Systematic Investment Plan (SIP)

A systematic Investment Plan or SIP is a method of investing money in mutual funds. The other way to invest in a lump sum or one-time payment.

 

In SIP, you invest a fixed amount of money in a mutual fund of your choice every month. 

The setup is such that the money is automatically debited from your bank account. 

 

To know what amount of monthly SIP you need to invest to achieve a certain money goal, use our SIP calculator.  

 

1. You Can Stop the SIP Anytime

There is no fine if you decide to stop a SIP plan. If you want to stop it, you simply have to opt-out of the SIP plan.

 

This has a very big advantage over recurring deposits (RD) which usually put a fine on you if you want to stop it.

 

After stopping your regular SIP investment, you can choose to get back the amount or let it continue to be invested in the mutual fund.

 

2. You Can Skip SIP Payment 

If for some reason you don’t have enough balance in your account for the SIP investment of a certain month, you can continue with the SIP next month without any problems.

 

No fine or charges will be levied against you. In the case of RD, there will most likely be a fine for missing a payment.

 

3. You Can Invest Very Small Amounts

With SIP plans, you can start investing in mutual funds with an amount as little as ₹500 a month. Here are the best mutual funds to start a SIP investment with ₹500.

 

Even if your savings are not very large, you can still take advantage of the growth being experienced by India by investing in mutual funds!

 

4. You Benefit from the Effect of Compounding

When you invest using a SIP plan, your monthly SIP investment gives returns. Those returns are added to your actual investment amount and invested again!

 

So over time, your continuous monthly SIP and the returns earned by them are subjected to a compounding effect that ensures exponential growth.

 

5. You Can Start a New SIP If You Have More Money

If you start earning more or if you can save more, you can always start a new SIP plan in the same mutual fund or a different mutual fund.

 

That way, the extra money will also be invested for the future!

 

6. You Do Not Need to Worry About Timing the Market 

You must have heard that you shouldn’t invest in an inflated market. When you invest using a SIP plan, you do not need to worry about timing your investment at all.

 

At times when the markets are high, your monthly SIP buys you a fewer number of units of a mutual fund. When the markets are low, the same monthly SIP amount buys you more units.

 

Therefore, in the long term, you do not pay very high prices for any unit of a mutual fund. This is called the rupee cost averaging.

 

7. You Become More Disciplined in Your Savings

It is a common complaint of many people that they aren’t able to save money. The truth is, the more you earn, the more you spend. 

 

This is why you should save first and then spend. If you fix your date of SIP investment right after the date you receive your income, you invest before spending!