WHAT IS A SIP?
SIP is an investment option offered by all mutual fund houses, which enables an investor to put in a fixed amount of money at predefined intervals in a chosen mutual fund scheme. SIPs are offered in all fund categories — equity, hybrid, gold, international fund of funds or a debt fund. Many fund houses accept amounts as low as Rs 500. SIPs automate investing and help deploy money regularly into equities and debt without worrying about the ups and downs of the market. In the long run, investors stand to benefit due to rupee cost averaging and the power of compounding.HOW DO YOU START IT?
To start a SIP, first identify a fund scheme in which you want to invest. This can be chosen based on your risk appetite, time horizon and goals. You need to be KYC-compliant before beginning your investment. A SIP can be registered on the fund house website, registrar’s website, using online platforms or through a distributor. It can also be done offline by filling out a form and handing it over to the fun house or the registrar. You can decide the amount of investment and the date. Some fund houses allow you to choose any day of the month while others have specific dates such as the 1st, 7th, 10th etc on which you can run your SIPs.
HOW ARE INVESTORS USING SIPs?
Financial planners advise investors to use SIPs to meet long-term goals like buying a car, or house, and for retirement. Investors can meet their long-term goals more than five years away by using equity SIPs. Since equities can deliver higher returns than other asset classes like debt or gold, investors can work backwards and calculate the amount they need to invest each month to meet their goals. For example, an investor putting in Rs 10,000 a month in an equity SIP for 10 years can accumulate a corpus of Rs 23.23 lakh, assuming a return of 12%
HOW LONG SHOULD SIPs BE MAINTAINED?
Most fund houses mandate a minimum time frame of 12 months for a SIP. Financial planners, however, advise investors to maintain their SIPs for a minimum of five years and link them to a goal to reap their benefits and ideally continue it until the goal is reached. Investors can choose any tenure, which could be 3, 5 or even 10 years or link it to their long-term goals. A SIP can be closed at a month’s notice, should the scheme not perform in line with investors’ expectations.