What Is A Systematic Investment Plan (SIP)?
The SIP (Systematic Investment Plan) is a planned investment approach in which you regularly invest a fixed, predetermined amount. In other words, SIPs allow you to invest small sums periodically to create a significant investment corpus over time due to the power of discipline and compounding. While SIPs have become popular in mutual funds, the systematic approach can be of great advantage across investment options.
How Do Systematic Investment Plans Work?
A systematic investment plan automatically deducts a fixed amount from your linked bank account on a set date every month. This amount gets invested into an investment option like a mutual fund scheme.
Let us understand this with an example:
- You decide to invest INR 5,000 every month through SIP
- You choose an equity or debt mutual fund for your investment
- You select the 15th of every month as your SIP date
Now, INR 5,000 will automatically get deducted from your linked bank account on the 15th of every month. This INR 5,000 will purchase units of your selected mutual fund.
As you continue your SIP investment month after month, you would accumulate more and more units of the mutual fund. The market value of these units is expected to grow as the fund's Net Asset Value (NAV) rises over time. Even a small systematic investment plan can grow into a large corpus in the long run.
SIP instills financial discipline as you save and invest periodically. It is a disciplined saving method that helps you build wealth over time.
When To Invest In a Systematic Investment Plan?
Here are some prime conditions to start SIP investing:
- Unavailability Of A Large Lumpsum: SIP is the easiest route if you have little capital but want to start investing. SIP allows you to begin with minimal capital (INR 500) and invest small amounts periodically.
- First-Time Investor: SIP is ideal for new investors unfamiliar with market timing and valuations. It prevents investing a large lump sum at the wrong time in one go.
- Risk-Averse Investor: SIP in debt funds suits conservative investors who want stable returns without too much volatility risk exposure.
- Long Investment Tenure: To benefit from compounding, you need at least 5-10 years of tenure. The more extended your investment horizon, the better for SIP.
- Building An Emergency Fund: SIP is a disciplined way to create a phased emergency fund during your initial earning years.
Types Of SIP
Various types of SIPs available to investors are:
- Regular SIP: It implies investing a fixed amount at regular intervals. Investors cannot change investment amounts during the tenure.
- Top-up SIP: It allows for a periodically increasing SIP amount. It helps invest higher sums as income rises.
- Flexible SIP: With flexible SIPs, investors can alter investment amounts or pause the SIP based on their research or professional advice.
- Perpetual SIP: The SIP continues till the investor instructs to stop without any predetermined maturity.
- Trigger SIP: It starts, stops, or switches investments when a pre-set event occurs, like a NAV change.
- SIP With Insurance: Some asset management companies (AMCs) offer insurance coverage for investors who invest through SIPs.
- Multi-SIP: This allows you to invest in multiple schemes of a fund house through a single instrument and is a great way to effortlessly build a diversified portfolio.
Benefits Of Investing With SIP
- Compounding: SIP over long tenure leverages compounding to grow wealth significantly.
Read more on The Benefits Of Compounding Through SIPs
- Cost Averaging: SIP fixes average unit cost by investing a fixed amount regularly at different levels and hence averages out the purchase price. As the market rises or falls, an SIP strategy will balance out the highs and lows and reduce your dependence on the market.
- Enforces Discipline: Automatic investments enforce financial discipline to achieve goals.
- Flexibility: Investors can pause, increase, or decrease their SIP anytime, according to changing economic and financial conditions.
- Accessibility: A low minimum investment amount and convenient online process make it accessible for most investors.
- Diversification: Investors can invest across equity, debt, etc., to balance out risks.
Is SIP Better Than Fixed Deposits?
Investors can weigh the benefits of SIPs and fixed deposits based on risk tolerance, return expectations, investment size, and time horizon.
SIP entails regular investments of equal amounts in mutual funds, while fixed deposits provide a lump sum investment with assured returns. Fixed deposits are favored by conservative investors, prioritising capital preservation without risk. On the other hand, SIPs in mutual funds are suitable for those seeking potentially higher returns with moderate to high risks.
Fixed deposits offer predetermined fixed returns for a specified period, whereas SIPs offer flexibility for goal-oriented investments, potentially yielding higher returns and allowing redemption at any time.
Are There Any Safer Alternatives To SIP In Mutual Funds?
While SIPs in mutual funds are safer than equity investing, they are not completely risk-free due to their market-linked nature. Alternatively, you can start your SIP journey in corporate bonds that offer high-yielding, predictable fixed returns.
Grip Invest offers two SIP options- Short Term Bond SIP and Medium Term Bond SIP with the following characteristics:
- Short Term Bond SIP:
- Min Investment: INR 10,000
- Bond Tenure <18 months
- Yield- 9-10.5% p.a.
- Rating: A- and above
- Medium Term Bond SIP:
- Min Investment: INR 10,000
- Bond Tenure: 18-36 months
- Yield: 10-11.5% p.a.
- Rating: A- and above
To enable diversification, the underlying bond changes monthly within the tenure and yield parameters.
Starting a SIP with Grip Invest takes just five easy steps:
- Select SIP type, amount, and date
- Get the payment link on the chosen date
- Make a one-click payment
- Bonds get added to your portfolio
- Repeat next month
Grip Invest makes starting your SIP investment quick, convenient, and structured. Explore the fixed-income investment journey now through SIP.
Frequently Asked Questions On What Is SIP Investment
1. How can I make an online SIP investment?
You can invest online via the mutual fund website by registering your account, adding bank details, selecting fund & SIP details, and authorising auto-debit.
2. What is NAV in SIP?
NAV or Net Asset Value refers to the market value per unit of the mutual fund scheme you invest via SIP. NAV keeps changing based on the market value of investments held under the fund.
3. Can I withdraw a SIP anytime?
Yes, you can pause, discontinue, or withdraw your SIP investment anytime you want unless it has a lock-in clause. You also have redemption flexibility for the units bought via SIP.
4. Is your money safe in SIP?
While SIPs are not completely riskless since market fluctuations influence their returns, they are perceived as relatively safer. This is attributed to their rupee cost-averaging strategy, their capacity to endure market volatility over an extended period, and SEBI's regulatory controls.
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Disclaimer - Investments in debt securities are subject to risks. Read all the offer-related documents carefully. The investor is requested to take into consideration all the risk factors before the commencement of trading. This communication is prepared by Grip Broking Private Limited (bearing SEBI Registration No. INZ000312836 and NSE ID 90319) and/or its affiliate/ group company(ies) (together referred to as “Grip Invest”) and the contents of this disclaimer are applicable to this document and any and all written or oral communication(s) made by Grip Invest or its directors, employees, associates, representatives and agents. This communication does not constitute advice relating to investing or otherwise dealing in securities and is not an offer or solicitation for the purchase or sale of any securities. Grip Invest does not guarantee or assure any return on investments and accepts no liability for the consequences of any actions taken based on the information provided. For more details, please visit https://www.gripinvest.in/.
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