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Systematic Investment Plan (SIP) – Best way to Invest

Investing in an SIP can help you make the most of your money. This is because the interest is compounded each year, thereby giving you better returns. Regular contributions towards SIP usually balances out market dips, and helps you inculcate a habit of saving and investing is a more disciplined way. Furthermore, you gain high returns and can even make your savings inflation-proof with SIPs.


Some other benefits include tax deductions under Section 80C and being able to invest as little as Rs.500. However, in order to avail these benefits and make the most of your SIP investment, it is important to invest in an SIP the right way. Take a look at how you can do it.

What is SIP ?


Systematic Investment Plan, commonly referred to as an SIP, allows you to invest regularly a fixed sum in your favorite mutual fund scheme/s. In SIP, a fixed amount is deducted from your savings account every month and directed towards the mutual fund you choose to invest in.

Benefits of Investing in SIP

With SIP, you can start investing in small amount and reap big returns. It’s a simple and convenient way to track your investments. It also brings financial discipline.

convenience

Convenience

You can invest in a disciplined and phased manner using SIP. It allows you the convenience of starting your investment with as low as Rs 500.

rupee cost averaging

Rupee Cost Averaging

No need to time the market. Buy more units when markets are low. This reduces your overall cost of investment..

power of compounding

Power of Compounding

Compound interest ensures better long-term benefits compared to one time investment

power of compounding

2X Higher Returns

As compared to the conventional FDs, ELSS gives higher returns to beat inflation in an efficient manner.

SIP or One-time : How should I Invest?

Often first time investors get confused choosing between an SIP investment or one-time investment.

One-Time Investment

In this mode, you make a one time payment of a considerable sum of money.
Monthly SIP

On the other hand, in an SIP, a fixed amount of sum is deposited at regular intervals of time in a mutual fund scheme. In short, one-time investment mode can be chosen if you have money in hand right now that can be invested and an SIP can be chosen if you are expecting a regular inflow of money in future.
 SIP Investment One Time Investment
Periodic investments in a tenureOne-time investment in a tenure (lump sum)
Earns better during market lowsEarns better during market highs
SIPs can protect investments from potential market crashOne-time investments can lead to major loss during market crash, which happens often enough

How to Choose a SIP

The internet will provide you with the A-Z of the mutual funds you shortlisted including their past returns.
However, please make sure that the fund you pick meet the below criteria.

₹500 Crore Asset Under Management


A 500 Crore asset size can be a reasonable benchmark when selecting a fund. This doesn’t mean that funds below this Corpus are bad, but it is not advisable.

Duration of SIP


The duration of SIP mutual fund is an important factor from a risk, return and tax point of view. Keep 5 years reference point and check how the fund performed across markets.

Fund House


Reputation of the SIP fund house is an important factor while choosing a plan as it tells how well they were able to handle market highs and lows without letting their investors feel the impact.

Select an SIP based on your financial goal


In order to select atop SIP according to your financial goals, it is always better to speak to a fund advisor. Ensure you are informing them about your long-term and short-term goals. This will allow the fund houses and experts to gauge your time line and risk appetite. You can also use an SIP calculator like this need calculator to work backwards from the amount you want to save for.

Use your calculations and expert help to find the best SIPs. Opt for a longer tenor, as the more time you stay invested, the higher your returns will be. Even if the amount you put forward regularly is low, choosing long-term plans will allow your savings to grow with the interest compounding every year. Additionally, the rupee cost averaging system, over a longer stretch of time, will stabilise your returns and ensure growth for your investment.

One beneficial way to invest in a high-yielding top SIP is to select a fund house that assures growth on your investment.

Choice of Tenor


Whether you pick a small-cap or a large-cap SIP, the potential of gain in both cases are high. This is owing to the fact that the returns on SIPs are calculated through rupee cost averaging. This means the longer you stay invested with SIPs, the higher is your return. However, in case you are unsure, you can choose an SIP for just 6 months too. FDs allow you similar flexibility.If you want to claim tax benefits, then for both, staying invested for a minimum period is must. In case of FDs it is 5 years and for SIPs, backed by ELSS, it is 3 years.

Once you consider these factors, as well as your goals, you can easily decide to invest in one over the other. However, it is best to include both SIPs and FDs in your portfolio to fulfil different needs and create a balanced folio.

How to Invest in SIP ?

Set Investment Goals
Every mutual fund has a specific goal and purpose. You need to choose one that suits your requirements. Let us know your financial goals and income details and we will handpick the plans for you.


Choose
Make an informed decision based on your individual needs and choose an Systematic Investment Plan mutual fund you want to invest in. You can also delegate this task to the TAXAJ team.


KYC

All our mutual fund investments mandate KYC documentation and a netbanking account. We offer e-KYC option to upload all the documents online from the comfort off your home or office. There is usually no need to sign cheques and fill out forms.

Frequently Asked Questions

Why Choose Systematic Investment Plan?
You are short on cash to make a lump sum investment or if you want to reduce your risks you can choose an SIP. Also, an SIP would bring in discipline, which helps you to make logical decisions instead of succumbing to greedy impulses.


When is the best time to invest in SIP?
There is nothing like a good timing when it comes to investments.It’s more about what you need from that investment. In an SIP, you can automate your transfers, and be hassle-free about the date in a particular month.


Should I Choose SIP for Long term wealth?
Any investment period can be chosen by a customer. But, it has been proven that a long term investment has been rewarded with greater returns as compared to short term investment.


How much should I invest in a mutual fund through SIP?
In an SIP investment you can start with as low as Rs.500 as your investment and you can go up to whatever limit you want to.


Can I miss an SIP payment?
Yes, you can miss your payment and still your account wouldn’t be deactivated. There are options to pause your payments in various mutual funds.


Are all investments through SIP have tax benefits?
Only investments in ELSS through SIP have tax exemption up to Rs. 1.5 lakh PA under Section 80C.


Is SIP safe?
An SIP is just a mode of investment. The safe/risky component is related to the investment which you choose.


How do I start my SIP investment?
Just choose the investment in which you want to invest and you are ready to start. One primary thing is that you have to fill your KYC documents before investing.


How to shorten SIP duration?
You can send a written application or ask for an request online to the fund management company before the next SIP is scheduled. However, you should have completed the minimum investment period, which is generally 6 months.



How can I extend my SIP duration?
At the end of the SIP term, you will get an option for renewal of your investment. You can fill out that form and then choose the desired duration of investment.