Systematic Investment Plan

A systematic investment plan, or SIP, enables individuals to invest responsibly in mutual funds. SIP deducts a predetermined sum from the investor’s bank account on a regular basis, which is then invested in a mutual fund of their choice. Before we get into the benefits of SIPs, let’s first go over how systematic investment plans function.

What is a Systematic Investment Plan?

A Systematic Investment Plan (SIP) is a type of mutual fund investment in which participants make regular, automatic contributions on a regular basis. SIPs allow you to organise your investments in order to attain your long-term financial goals. You can achieve this by selecting your target amount and the amount you’d like to put in a mutual fund plan at regular intervals.

Assume you want to invest Rs. 500 per month for five years. Set up a SIP with a mutual fund to automate your contributions for the specified time period. You can also decide how frequently you want to give. SIP mutual funds often enable investors to invest weekly, monthly, quarterly, semi-annually, and so on.

It is also critical to comprehend the SIP meaning in mutual funds because it is not an asset in and of itself, but rather a method of investing in mutual funds. Contributions to your SIP will be invested in a mutual fund scheme of your choice.

How Does SIP Work?

To properly grasp the numerous SIP benefits, you must first understand how a SIP works. When investing in a mutual fund scheme through SIPs, an investor decides to invest a set amount of money at regular intervals such as monthly, quarterly, weekly, daily, and so on.

This payment is withdrawn automatically from the investor’s bank account via a standing instruction filed with the bank. After the payment has been deducted, it is invested in the Mutual Fund chosen by the client, and scheme units are allotted to the investor based on the mutual fund’s day-end Net Asset Value (NAV).

Types Of SIP

Now that we’ve covered the basics of what SIP is, how it works, and the benefits of SIP, let’s look at the many types of SIPs available.

Fixed SIP

Fixed SIPs are the most basic type of SIP. You select an amount and a deadline for contributing, and the rest of the procedure is automated. This has already been described in prior examples, but you should be aware that unless you specify an expiration date, these SIPs will expire in the year 2099 by default. Given that 2099 is in the far future, you should not be concerned. Though fixed SIPs are the most common among investors, there are other varieties that may be more suitable for your investment style.

Top-up SIP

Top-up SIPs are ideal for investors who wish to gradually increase their SIP contributions. Top-up SIPs make a lot of sense in situations when your income is increasing year after year. By selecting a top-up SIP, the investor can contribute the full increment or a portion of it to the SIP. For example, if you now contribute Rs.,20,000 per month and your income grow by 10% per year, you might opt to raise your contribution by the full extra income, a part of it, or just by 10%.

Perpetual SIP

Perpetual SIPs are just fixed SIPs without duration. Once enrolled, the amount of your SIP payment will be deducted from your bank account unless you ask the fund house to halt withdrawals. If you don’t want your investments to be confined to a specific number of years, perpetual SIPs are an excellent choice since they avoid the need for frequent renewals. Of course, you may redeem your investments whenever you choose.

Flexible SIP

A flexible SIP allows you to adjust the amount of each contribution or miss a few contributions if you so choose. There are two conceivable reasons why an investor could desire to alter or miss a contribution. To begin, your SIP contributions are modified based on the market’s general outlook. If the market is overvalued, your monthly payments through SIP would be cut and then boosted after markets were corrected and prices looked appealing. This is done by fund firms using a predetermined value matrix. You will be able to set your own minimum and maximum SIP investment amounts. Please keep in mind that you must notify the fund house of any adjustments a week before your SIP instalment is due.

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SIP Calculator

As seen above, you may use an online SIP Calculator, such as one provided by Kuvera, to determine the predicted amount you would get if you started a SIP of a specific amount for a specific time period.

Simply enter the SIP amount, the time period for which you wish to invest in the mutual fund, and the estimated return into Kuvera’s SIP Calculator. Upon conclusion of the time period, you will get the complete investment amount. You can choose the proper amount to start a SIP with based on how much you want your ultimate amount to be.

Disclaimer: Mutual funds are subject to market risks; before investing, please carefully read the papers.