The worst thing about investing is living with misconceptions that can hinder our chances of creating wealth. Here are 12 things that all aspiring mutual fund investors must know about the Systematic Investment Plan.
- What is SIP?
Often referred to as SIP in the mutual fund industry, a Systematic Investment Plan is a simple and effective way to save and invest a fixed sum periodically in mutual funds. To bring in the discipline of regular investing, one can consider SIP.For those who initiate mutual fund investments through automated SIP transactions, every month a fixed sum is debited from their savings account and transferred to the fund.
- Is it safe to invest in mutual funds via SIP?
SIP is a safe mode of investing as opposed to lumpsum investing where the investor has to invest surplus capital right at the beginning of the investment cycle. Lumpsum investing is where you end up exposing your entire investment sum to market volatility whereas, in SIP, only a certain amount of your overall investment sum is exposed to volatile markets.
- What are the different SIP intervals?
A mutual fund SIP can be weekly, monthly, quarterly, biannually, or annually.
- Can you stop SIP midway?
Yes, if you feel that the scheme you invested in is not performing as per your expectations, you can stop SIP investments in that fund. There are no charges or penalties for abruptly stopping your SIPs midway.
- Can SIP help me save tax?
Starting a monthly SIP of Rs 12000 in ELSS mutual fund can help you save tax of up to Rs. 1.5 Lacs every fiscal year. By investing this amount an individual can save up to Rs. 46,800 in taxes.
- Can you modify the SIP sum?
Yes, it is possible for investors to increase or decrease their monthly SIP investment sum. Suppose you start a monthly SIP or Rs. 5000 in an equity fund and want to achieve your financial goals faster, after 12 months you can increase the investment sum by 10% or you can even decrease this investment sum to suit your financial condition.
- Can you start a SIP online?
Yes, it is possible to start a SIP without manually visiting the AMC. Investors have to become KYC compliant and submit all the necessary documents like AADHAR card, PAN card, passport size photograph, etc. to initial online mutual fund investments.
- Do SIPs have lock in periods?
SIPs do not have lock-in period, the mutual fund schemes in which you start a SIP might have a lock-in period. For example, the ELSS scheme has a predetermined lock-in of three years. Children’s gift fund has a lock-in till the child attains the age of maturity.
- Is there any entry or exit load in SIPs?
Entry and exit loads are applicable to mutual fund schemes and not SIP. Whether an individual will have to pay an exit load will entirely depend on the mutual fund scheme he or she chooses and not the SIP.
- Is a SIP similar to a Recurring Deposit?
In a Recurring Deposit (RD) the investor is promised a fixed interest rate. In SIP the returns depend on the performance of the scheme. Mutual funds do not guarantee returns but RDs offer fixed returns. In both, the investor invests a fixed amount periodically.
- Is SIP ideal for long term?
SIP is best suited for investors with a long term investment horizon as it allows them to benefit from power of compounding and rupee cost averaging.
- Are mutual funds and SIPs similar?
A mutual fund is an investment product and the SIP a mode to invest in that product.
