What is Systematic Investment Plan or SIP and its features?

 What is Systematic Investment Plan or SIP and its features?

A Systematic Investment Plan or SIP is not an asset class or an investment instrument. It is, in reality, one of the methods of investing in mutual funds. This is where the regular investment with a fixed sum of money is made in a disciplined manner.

What is Systematic Investment Plan (SIP)?

The other method of investing in the mutual fund is a one-time lump sum investment.

SIP helps you to invest a fixed amount of money regularly in various mutual funds schemes depending on your financial goals. You have the potential to create long term wealth by investing a small sum of money via SIP.

The SIP investment approach suite people with regular cash flow or a fixed salary.

Let’s say, for example, you want to build a fund of INR 5.4 lakh in 3 years for a foreign travel trip. By starting a monthly SIP investment for INR 15000, you can achieve the goal conveniently.

SIP is the best way to get into the habit of saving and investing on a regular basis. Apart from that, if you start SIP early, you have a longer investment horizon to avail benefits of the power of compounding.

Additionally, a SIP investment avoids the timing of the market. SIP investment is least affected by the market conditions due to rupee cost averaging. When the markets are high, you purchase a fewer number of units as compared to the down market.

Features of Systematic Investment Plan (SIP)

  • Small Investment Amount

SIP helps you to start a mutual fund investment with a small amount in comparison to a lump-sum where you need a larger sum of money for the purpose of investment.

You can start a SIP for an amount as small as INR 50 per month. As your income grows, you can increase the amount of SIP.

  • Regular Investment Intervals

SIP investments are made at a regular time period. You have the flexibility to choose the investment cycle, be it weekly, monthly, or quarterly. A regular investment approach makes you disciplined in savings and investments.

Regular investment is a better option for investors as compared to a one-time single investment. Your investment is spread over time, and you benefit from rupee cost averaging.

  • Fixed Investment Amount

The investment amount is fixed at the time of starting a Systematic Investment Plan. Moreover, you can use the “SIP-Top UP Option” offered by various other mutual fund houses to make an additional contribution.

SIP amount cannot be decreased. You need to cancel the existing SIP and start fresh if you want SIP investment for a lower amount.

  • Option to Pause Investment

You can ‘pause’ the SIP investment for a temporary period of around 1 to 3 months, which is useful if you face any financial crunch.

The SIP does not stop at the time of pause. It starts automatically at the end of the pause period. You need to check with your mutual fund house for the pause facility.

  • Flexibility to Shorten or Extend the Systematic Investment Plan Interval

SIP offers you the flexibility to change your investment intervals into weekly, monthly, or quarterly SIPs as well. You can make an online or written request to change your existing SIP interval.

Also Read: What are Mutual Funds?

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