Introduction of Systematic Investment Plan or SIP
A Systematic Investment Plan (SIP), more popularly known as a SIP, is a facility offered by mutual funds to investors to invest in a disciplined manner. The Systematic Investment Plan or SIP facility allows investors to invest a fixed amount of money at pre-defined intervals in the selected mutual fund scheme. The fixed amount of money can be as low as Rs. 500, while the pre-defined Systematic Investment Plan or SIP intervals can be on a weekly, monthly, quarterly, semi-annually, or annual basis. By taking the Systematic Investment Plan or SIP route to investments, the investor invests in a time-bound manner without worrying about the market dynamics and stands to benefit in the long-term due to average costing and power of compounding. A Systematic Investment Plan or SIP calculator is a tool that allows individuals to get an idea of the returns on their SIP investments.
To achieve financial success in life, we put in many hours at work. And it is only during these hours that we strive toward achieving our goal. But your success is in progress with a Systematic Investment Plan (SIP). A Systematic Investment Plan or SIP lets you invest a fixed amount in mutual funds step-by-step over a period of time, thereby averaging out your cost of investing and benefiting from the power of compounding. The power of compounding works best as you stay invested, helping your money earn more money itself over the years. So, as you get ready for work or even decide to take a break from it, rest assured that Systematic Investment Plan or SIP is constantly working towards your goals and helping you keep your success in progress.
A Systematic Investment Plan (SIP) is a disciplined investment approach. For example, if you invest Rs. 2,000 per month in a mutual fund through Systematic Investment Plan or SIP, you should ensure that you transfer the amount into the fund every month. You can select the auto-debit feature to ensure that the amount is transferred to the fund directly from your bank account on the allocated date. This way, you don’t have to worry about missing the monthly payment. The aim of investing in mutual funds through Systematic Investment Plan or SIP is to create wealth in the long run. Since it is a recurring investment process and not a one-off investment, it can help you inculcate the habit of saving and investing.
The Systematic Investment Plan or SIP has been gaining popularity among Indian Mutual Fund investors as it helps them invest in a disciplined manner without worrying about market volatility and timing the market. Prospective investors might think that Systematic Investment Plan or SIPs and mutual funds are the same. However, Systematic Investment Plan or SIPs are merely a method of investing in mutual funds. The other method is a lump sum. A Systematic Investment Plan or SIP calculator is a tool that helps you determine the returns you can avail yourself of when parking your funds in such investment tools. A systematic investment plan, or SIP, is a process of investing a fixed sum of money in mutual funds at regular intervals.
Benefits of Systematic Investment Plan or SIP
There are several financial benefits for investors when they choose to invest in mutual funds online through Systematic Investment Plan or SIPs. Here are a few important ones:
1. Rupee cost averaging
Investing in Systematic Investment Plan or SIP means you don’t have to worry about timing the market. Systematic Investment Plan or SIP investments ensure that you purchase more fund units when the market is low and lesser units when the market is high; this is known as rupee cost averaging. It helps investors generate relatively reasonable returns without worrying about market volatility.
2. Power of compounding
Compounding is the process of earning income on your principal investment plus the income earned. For instance, if you invest Rs. 10,000 in a mutual fund (at a 10% interest rate per annum), you gain the interest of Rs. 1,000 at the end of the year. Now, you start making interest not just on the original Rs. 10,000 you invested but also on the Rs. 1,000 you have received as interest.
Over time, this can grow into a large corpus of money. Consider a situation where you invest Rs. 5,000 in a mutual fund offering annual returns of 12%. If you invest in this fund for 15 years, you will earn a sum of Rs. 25 lakh. Continue investing for five more years, and you will likely achieve a corpus of Rs. 50 lakh. Another five years and your corpus will increase to Rs. 95 lakh. This is the power of compounding. The longer you invest, the better your returns could be.
3. Simple to invest
Investing in mutual funds through Systematic Investment Plan or SIPs can be easy. When you decide the amount, you wish to invest, merely provide an auto-debit instruction to your bank account. This transfers the investment amount directly to the fund. They are also easy to monitor because the AMC provides you with all the necessary details of your investment clearly and concisely.
4. Ideal tool for financial planning
You may have various goals you wish to achieve in life. For instance, you may have short-term goals like travelling to all the world’s eight wonders in a single tour. On the other hand, you could also have longer financial goals like buying a house or starting your own business ten years to Windows down the line. When you invest steadily in different mutual funds, you can hope to achieve all your financial goals at the right time in life.
Types of Systematic Investment Plan or SIP
Systematic Investment Plan or SIP allows investors to adopt a disciplined investing method with a one-time mandate. However, choosing the right kind of Systematic Investment Plan or SIP is the key. Following are the different types of Systematic Investment Plan or SIP investments available in India:
1. Regular Systematic Investment Plan or SIP
A regular Systematic Investment Plan or SIP is the simplest type of investment plan. Under Systematic Investment Plan or SIP, the investor invests a fixed amount at regular intervals. The SIP frequency can be monthly, bi-monthly, quarterly or half-yearly. Furthermore, there are daily and weekly SIPs as well. However, these are not highly recommended ones. When choosing a Systematic Investment Plan or SIP, investors can mention the SIP duration, installment amount and frequency. In a regular SIP, one cannot change the investment amount during the tenure of the investment.
2. Top-up Systematic Investment Plan or SIP
Top-up Systematic Investment Plan or SIP or Step-up SIP allows investors to increase their SIP amount periodically. Many asset management companies have a provision for stepping up SIPs. Choosing a step-up SIP adds more flexibility to the recurring contributions and helps investors in parking more significant amounts. In other words, when an investor’s income increases, they can simultaneously increase their Systematic Investment Plan or SIP contributions to save higher amounts. This will help them create their investment corpus faster because of the power of compounding. Therefore, choosing Systematic Investment Plan or SIP plans that offer this facility is advisable to top up the investments.
Furthermore, one can increase their Systematic Investment Plan or SIP plans to multiples of INR 500. For example, if an investor invests INR 10,000 in a mutual fund scheme and opts for a step-up every year by INR 1,000. The SIP amount from the 13th month onwards will become INR 11,000. A regular top-up of the mutual fund investments will enable investors to generate their investment corpus sooner. Moreover, it also helps reduce inflation’s effects on the maturity corpus.
3. Flexible Systematic Investment Plan or SIP
As the name suggests, a flexible Systematic Investment Plan or SIP allows its investors to alter their investment amount. It is also known as Flexi SIP or Flex SIP. One can intimate the fund house with the changes in the Systematic Investment Plan or SIP amount or contributions. However, the intimation has to be given at least a week before the deduction date of the SIP installment. Investors can adjust their SIP amount based on their financial or market conditions. A pre-decided formula for market conditions Systematic Investment Plan or SIP allows investors to invest more when the markets are falling and reduce the SIP amount when the markets are high.
For example, if an investor faces a cash crunch, they can inform the fund house to halt their SIP payments until further notice. This provides the investors to skip their SIP installments without defaulting. Similarly, investors with surplus cash can increase their SIP amount for a specific duration. Therefore, as per the investor’s instructions, the fund house can adjust the Systematic Investment Plan or SIP amounts.
4. Perpetual Systematic Investment Plan or SIP
While filling the SIP application form, the investor has to select the tenure of the SIP. If no tenure is specified, then the SIP becomes a perpetual SIP. In other words, the SIP will continue for duration until the investor provides instructions to the fund house or the manager to stop the investments. Also, in case an investor doesn’t wish to limit their contributions with maturity tenure, they can voluntarily choose the perpetual SIP option in the application form. This gives the investor an opportunity to stay invested for longer durations and observe the market. And, in the future, they can decide to redeem at any time.
5. Trigger Systematic Investment Plan or SIP
6. Systematic Investment Plan or SIP with Insurance
A few asset management companies offer insurance coverage if an investor opts for long-duration investments. The initial cover for the insurance is usually ten times the first SIP amount, which gradually increases with time. Also, this feature is available only for equity mutual funds. It is important to note that term insurance is just an add-on feature and doesn’t impact the fund’s performance.
7. Multi Systematic Investment Plan or SIP
A multi-SIP allows investors to start investing in multiple schemes of a fund house through a single instrument. This helps investors diversify their investment portfolios. Furthermore, it also reduces the number of paperwork. Investors can give a single form and payment instructions to start their SIP plans.
Systematic Investment Plan or SIP Calculator
What is a Systematic Investment Plan or SIP calculator?
A Systematic Investment Plan (SIP) calculator is an online financial tool that can help to calculate the returns you would earn on your SIP investments. The Systematic Investment Plan or SIP calculator also tells you how much you would need to invest monthly to earn a target corpus. Simply put, it provides a roadmap to achieving your various financial goals. The Systematic Investment Plan or SIP calculator can be highly effective in automatically computing complex financial calculations without needing a pen and paper. You merely need to provide a few inputs, and the calculator arrives at the result in seconds.
Systematic Investment Plans, or SIP in mutual funds have become one of the most popular investment options for millennials. These mutual fund sip calculators are designed to give potential investors an estimate of their mutual fund investments. However, the actual return offered by a mutual fund scheme varies depending on various factors. The Systematic Investment Plan or SIP calculator does not provide clarification for the exit load and expense ratio (if any). The Systematic Investment Plan or SIP calculator will calculate the wealth gain and expected returns for your monthly SIP investment. Indeed, you get a rough estimate of the maturity amount for any of your monthly SIPs based on a projected annual return rate.
How can a Systematic Investment Plan or SIP Calculator help you?
Systematic Investment Plan or SIP is a more lucrative mode of investing funds compared to a lump sum amount, according to several mutual fund experts. It helps you become financially disciplined and create a habit of savings that can benefit you in the future.
A Systematic Investment Plan or SIP calculator online is a beneficial tool which shows the estimated returns you will earn after the investment tenure.
A few of the benefits of Systematic Investment Plan or SIP calculator include –
- Assists you in determining the amount you want to invest in.
- It tells you the total amount you have invested.
- Gives an estimated value of the returns.
A Systematic Investment Plan or SIP calculator for mutual funds generally has three input boxes. They are:
- Monthly investment amount
- Investment period
- Expected annual returns
How do Systematic Investment Plan or SIP calculators work?
A Systematic Investment Plan or SIP calculator works on the following formula:
M=Px ((1+ijn-1)/) × (1+i).
In the above formula,
- M is the amount you receive upon maturity.
- P is the amount you invest at regular intervals.
- n is the number of payments you have made.
- i is the periodic rate of interest.
Take, for example; you want to invest Rs. 1,000 per month for 12 months at a periodic rate of interest of 12%, then the monthly rate of return will be 12%/12 1/100=0,01
Hence, M=1,000X (([1 +0.01 ]*(12)-1)/0.01) x (1+0.01)
which gives Rs 12,809 Rs approximately in a year.
The rate of interest on a SIP will differ as per market conditions. It may increase or decrease, which will change the estimated returns.
Let us give you another example.
Enter the amount you wish to invest in a fund every month. For instance, it can be as little as Rs. 500 or as high as Rs. 10,000 (or more), depending on your investment. Next, you should input the tenure of investment. It would be best to decide when you want to invest in the fund through the SIP. Generally, fund houses require investors to stay invested in the SIP for at least six months. However, you may want to stay invested for a more extended period (say three years or more) that could help you achieve reasonable returns.
After that, you need to enter the rate of return you expect on the investment. This value is generally based on the fund’s past performance. Once you input these values, hit the ‘calculate button to find out the corpus you could earn in the specified period. You can adjust the values to find out what works best based on your budget and goals.
Benefits of investing through broker in Systematic Investment Plan or SIP
A professional financial advisor or a financial planner can bring a potential difference in your return. A SIP broker/agent can help you to manage your SIP funds more efficiently from his knowledge through experience.
Since a Systematic Investment Plan or SIP broker/agent works inside the market, he is well aware of the nature or quality of a SIP Investment. It is crucial to choose the right Systematic Investment Plan or SIP, for which the strong experience of a Systematic Investment Plan or SIP broker/agent can come for help. A SIP broker also monitors the stock market continuously and is capable of giving timely advice that can change the game.
Another important reason to go with a Systematic Investment Plan or SIP broker/agent is the asset allocation strategy and rebalancing service, which is very important to reduce the risk factor.
These are the general advantages you can take from the Systematic Investment Plan or SIP broker/agent.
Let’s see the other advantages of investing through an advisor.
Investing in Systematic Investment Plan or SIP isn’t as easy as you think. You have to assess your profile based on your financial needs and risk and then invest in the SIP that fit your needs. This is a time-consuming process. A Systematic Investment Plan or SIP advisor has better knowledge of mutual funds and can find the best place to invest the funds. This way investing in SIP regular is more convenient.
2. Regular review
As an investor, it is hard to keep track of the portfolio and do continuous reviewing. But a Systematic Investment Plan or SIP advisor regularly watches over your profile. Also, you get advised on rebalancing your portfolio when the need arises. Hence if you choose a regular plan, this becomes easier.
3. Professional help
Systematic Investment Plan or SIP advisors have in-depth knowledge of mutual funds and can give you the best professional advice to help you earn higher returns. But if you opt for direct plans, you must rely on your knowledge. Hence if you opt for a regular plan, you benefit.
Some value-added services are provided to you in case you opt for a regular Systematic Investment Plan or SIP. The services include keeping track of investments, providing tax proofs during tax filing, aiding in redemptions, etc.