You must have across AMFI’s (Association of Mutual Funds in India) ‘Mutual Fund Sahi Hai’ campaign that has led to the rise of popularity of Systematic Investment Plan or SIP schemes in India. However, a lot of people are still confused about investing in mutual funds via SIP. This article will provide a 5-minute guide to SIP for investors.
What is an SIP?
A lot of people confuse SIP as a product. However, SIP is a mere tool to invest regularly in mutual fund investments. Under the SIP scheme, an investor regularly invests a specified amount in their preferred schemes at regular intervals. The amount can be as low as Rs500 per month. The periodicity of investments can be daily, weekly, monthly, quarterly, bi-annually, or annually.
SIP inculcates the habit of investing regularly among investors, this instilling financial discipline. SIP investments also offer the benefits of compounding to its investors. When you invest for a long time, you earn returns on your returns, and your money starts compounding. The power of compounding is also referred to as the eighth wonder of the world by some. Also, SIP investments aids to average your purchase cost of each unit and thus maximising your overall returns. When you regularly invest irrespective of the market conditions, you end up buying more units when the market is low and vice-versa, thus averaging the cost unit of your mutual fund units.
Beginner’s guide to mutual fund investments
There are several options available to investors to begin their journey with mutual fund investments. An investor can invest in mutual funds via the online or offline method. Let’s understand these two options:
Under this method, an investor has to submit a duly filled application form along with a cheque or a bank draft. Further, one needs to send this application form to the registrars such as Computer Age Management Services (CAMS) or the respective Asset Management Company (AMC) or the designated Investor Services Centres (ISC) along with the required documents. You can also choose to invest through your bank if they offer such services.
An investor also has an option to invest via the online method through mobile applications or the websites of respective fund houses. Further, they could also invest directly through the CAMS website. This option is ideal only if you are an experienced investor and well-versed with mutual fund investments. This means that you are taking care of your money without the help of any third-party.
Investors are often advised to stick to their investments. They can increase or decrease their investment amounts according to their financial needs. Though discounting your SIP investments is often a frowned-upon practice by fund experts, you can stop your SIP investments if you feel they are not going to generate wealth for you. You can also calculate the true value of your investment upon maturity by availing an SIP calculator. Happy investing!