What is a Systematic Investment Plan (SIP) and how it works? • RoboAdviso | Best Blog for Mutual Fund and Investment in India

What is a Systematic Investment Plan (SIP) and how it works?

Roboadviso     Financial Planning,Mutual Funds     Posted On, Mon 4th April, 2016     No comments

What is a Systematic Investment Plan (SIP) and how it works?


Making a Systematic Investment Plan or SIP involves investing fixed amounts every month or every quarter in a Mutual Fund. What is amazing about making SIP is the systematic accumulation of wealth and profit which can be used by the investor in future.

Primarily, SIP allows investors to buy units on a given date each month, so that one can implement a saving plan for themselves. Instead of analyzing the market and trading themselves and figuring out when the market goes up or goes down, the benefit SIP offers is that the investor can invest a fixed amount on a monthly or quarterly basis and leave the rest of the active management part to the Fund Manager with whom they have subscribed.

The investor need not always spend cash for investing in SIP. They can submit post-dated cheques to the bank and schedule the payments in a timely manner as well. Investors can also assign or choose a date on which they want the SIP to be made and can flexibly exercise their control by also channelizing the ECS (Auto-debit facility)

Overall, the following are the benefits of investing via SIP:

  1. It is the best way of investing in a disciplined manner as the amount invested is fixed and can be scheduled for payments on a regular basis, conveniently.
  2. There is no need to time the market. Based on the market conditions, the Fund Manager providing the service does all the active management for us and most of the times, the investors receive benefits.
  3. There are two powerful investment strategies on which SIPs work: Rupee Cost Averaging, which involves benefitting from market volatility, and Power of Compounding, which involves smaller investments creating bigger benefits over time.
  4. It is considerably lighter on your pockets as you can yourself decide what amounts you are comfortable investing for, on a monthly or quarterly basis, respectively.
  5. The sooner one starts investing and the more one invests, surely the benefits are higher. Likewise, the longer the duration of the SIP, preferably anywhere from 3 to 10 years, the higher are the benefits reaped.

Nonetheless, SIPs not just give the investor a stronghold on their financial savings but also empower them to invest the money they want to and in the scheme they wish to invest in.

Some highly popular Mutual Fund schemes that people in India have trusted over many years and are recently banking upon are the ones by SBI, Franklin Templeton, Birla, UTI, Tata, ICICI and HDFC besides several others.

Right from investing in Banking, FMCG, Infrastructure and other Sectors to Large Cap, Mid Cap to Small Cap schemes, the investors have a choice to make as per their preferences.

In all, just follow the below steps to create bigger benefits with SIP: 

  1. Consult a financial advisor and find out the best performing mutual funds suitable for you.
  2. Decide the duration for which you wish to invest.
  3. Decide a considerably larger yet nominal amount to invest every month or quarter and give it at least 3 to 10 years’ time to grow.
  4. Be flexible and listen to a lot of people before taking the dive!

Last but not the least, start investing in SIP by trusting the power of disciplined investments and with the intent to be patient as you see your money grow!

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