All about SIPs and how you can get started
Updated: Jun 8
Jyoti was catching up with her college friend over coffee. They bonded over their mutual love for travelling, reminiscing their old carefree college days when they ventured off on trekking trips now and then. Jyoti's friend mentioned that she has enrolled with a travel group through which she goes on holidays every 6 months and coaxed Jyoti to join as well. Jyoti realised she hadn't taken a holiday in several years. She realised that she never managed to save up enough for an enjoyable holiday. Especially with her mounting EMIs for her home and car, she never managed to accumulate the corpus to travel.
Do you also often find yourself short of money to meet your dreams? Is there a way to make your small monthly savings work towards fulfilling your expensive goals? Walk into the world of Systematic Investment Plans (SIPs)
What is a SIP?
SIP, as the name suggests, is a systematic, structured means of investing. It essentially involves deducting a fixed sum of money from your bank account and investing it at regular intervals in the mutual funds of your choice. The amount to be invested can be as low as ₹500 and can be increased as per each investor's affordability.
Mutual funds help you participate in a wide variety of stocks or debt instruments by purchasing individual units of the fund. SIPs give you a convenient way to invest in these mutual funds regularly.
Every month that you put in money in a SIP the Asset Management Company (AMC) managing the mutual fund, purchases equivalent units of the mutual fund. Just like EMIs is an instalment towards repayment of a loan, SIP is an instalment towards building an investment corpus.
Why should you opt for SIPs?
Apart from the obvious benefits of saving discipline and the option of starting from small amounts, SIP as a mode of investing has a few advantages;
Compounding benefit: SIPs help you earn returns on returns. Each subsequent SIP builds on to your investment corpus, allowing you to earn returns on the returns on your earlier investment instalments eventually accumulating a substantial corpus.
Rupee cost of averaging: With SIPs, you buy more units of a mutual fund when the markets are down and fewer units when the markets are up. Hence, SIPs are an excellent way to beat the ups and downs in the equity market.
Investing flexibility: SIPs offer a plethora of features which make them a very flexible mode of investing – top-up feature- (where you can increase the amount of your ongoing SIP), pause feature and many others.
How do you set up a SIP?
To invest in any mutual fund through SIP, you require to set your e-mandate. The e-mandate process pre-approves a the fixed amount to be deducted from your bank account every month and can be online easily.
Is SIP only for small savings?
Not at all. SIP is an efficient mode of investing. While it has low minimums, it has no real maximum threshold and can be used to invest any sums of money in a structured and consistent manner.
So, no matter whether you are a small investor or a large investor, SIPs can be your go-to mode of investing to set you on track to achieve your goals. And now, if you are thinking of starting a SIP, here's a quick primer on getting started with Mutual Funds.