What is SIP?
A Systematic Investment Plan (SIP) is a mutual fund investment strategy that involves investing small fixed sums in a scheme at regular intervals. This approach is particularly beneficial for retail investors as it promotes disciplined investing, regardless of market conditions. SIP investments also offer the benefit of rupee cost averaging. As the investment is spread over time, it averages the purchase cost of mutual fund units and reduces the impact of market volatility.
Additionally, SIPs offer the convenience of automating your investments. This makes it easier to regularly save and invest without the hassle of timing the market. Over time, these regular investments can accumulate into a substantial corpus, supported by the power of compounding.
How to Invest in SIP in India?
You can easily start a Mutual Fund SIP on the Angel One app by taking the following steps:
- Go to the Home page and click on ‘Mutual Funds’.
- Choose the Fund that you want to invest in from the section titled ‘Discover Mutual Funds’. You can start your search by clicking on ‘EXPLORE ALL FUNDS’. You can also narrow down your search by clicking on the categories of funds given.
- Once you have gone through the details of a mutual fund and chosen it, click on ‘INVEST’.
- Choose the SIP option and enter the monthly amount and date, i.e. the day of the month when the SIP payments will be made from your account.
- Choose the mode of payment, for example, UPI.
- Click on ‘START SIP’ to start the SIP process.
- You can choose to make your first SIP payment right away as well by checking the box next to ‘Make first SIP payment now’.
Points to Consider Before Investing in SIP
Before starting a systematic investment plan, it is essential to consider several important aspects and make informed investment decisions. These points include the following:
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Your Financial Goals
Investing without a purpose can be a costly financial mistake that can be challenging to recover from. So, you must align your SIP investments with your overall financial goals instead of investing without an objective.
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Your Risk Appetite
You need to identify the level of risk that you are comfortable with. SIPs in some types of equity funds, like small-cap funds or emerging markets, may carry a higher risk than others, like index funds and large-cap funds.
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Your Investment Horizon
Decide whether you need to invest over the short term, medium term or long term. Your investment horizon depends on your financial goals. It directly affects the duration over which you invest in SIPs.
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The Potential SIP Returns
Another key aspect to consider before you begin an SIP is the potential returns from your investment. You could make use of a SIP calculator to get more clarity on the returns and understand how your investments may appreciate over time.
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Tax Implications
You must also assess the tax implications of your SIP investments. This will come into effect when you redeem your investments and sell your mutual fund units. The tax treatment for equity funds differs from that of debt funds.
How to Set SIP Goals?
Setting SIP goals is a crucial part of investing in mutual funds via a systematic investment plan. To set well-informed and practical goals for your SIP investments, here’s what you need to do.
1. Define the End Goal
Begin by identifying the purpose of your SIP investments. This may be retirement, buying a home, funding your child’s education or any other financial objectives. Be specific about what these goals are and when you aim to achieve them.
2. Set Your Investment Horizon
Each goal comes with a different time frame. Short-term goals might be 1 to 3 years away, medium-term goals could be 3 to 10 years away, and long-term goals might be more than a decade away. This timeframe will impact your SIP investment strategy.
3. Understand Your Risk Capacity
Your risk tolerance is crucial in deciding how aggressively you should invest in SIPs. If you are risk-averse, you might prefer debt funds or index funds. However, a higher risk tolerance could make it easier for you to start an SIP in equity funds.
4. Choose the Right Mutual Funds
Choosing the right funds is an essential part of setting SIP goals. Ideally, the fund you choose must align with your preferred risk levels, have significant assets under management, be managed by a skilled professional and belong to a reputed AMC.
5. Determine the SIP Amount
Lastly, determine the amount you need to invest via SIP to achieve your financial goals. A SIP calculator can help you with this. It shows you how your investment will appreciate over a given investment tenure at a given rate of return.
Illustrative Example of an SIP Investment
Say you earn ₹80,000 a month as your salary, and you decide to use 10% of your monthly salary to invest in a SIP in the mutual fund of your choice. You set up an auto-debit mandate, and the required amount is automatically debited from your salary account and invested in the fund of your choice via a systematic investment plan.
So, each month, you contribute ₹8,000 to your SIP investments for 20 years. At the end of this period, you would have invested ₹96,000 annually, amounting to a total investment capital of ₹19,20,000.
Over this period, if the mutual fund you invested in delivered returns at the rate of 12% per annum, your investment would have grown to ₹79,93,183. This translates to a profit of ₹60,73,183 (i.e. ₹79,93,183 minus ₹19,20,000).
You can even compute the potential returns from your SIP investments with a SIP calculator before you invest in a SIP. All you need to do is enter the details of your monthly investment, the expected rate of returns per annum and the investment duration. This free online tool will then compute the total value of your corpus after capital appreciation as well as the estimated gains or returns from your SIP investments.
Best Mutual Funds to Consider in 2024
| Fund Name | Category | 3-Year CAGR | 5-Year CAGR | AUM (in ₹ crore) | Expense Ratio |
| ICICI Pru Overnight Fund | Overnight fund | 126.01% | 65.97% | 10,373.88 | 0.10 |
| Quant Small Cap Fund | Small cap fund | 45.13% | 34.79% | 13,001.83 | 0.77 |
| Bank of India Small Cap Fund | Small cap fund | 34.40% | 32.71% | 819.51 | 0.88 |
| Quant Infrastructure Fund | Sectoral fund — infrastructure | 39.72% | 32.67% | 1,321.56 | 0.77 |
| Quant ELSS Tax Saver Fund | Equity Linked Savings Scheme | 32.42% | 31.16% | 6,416.22 | 0.76 |
| Nippon India Small Cap Fund | Small cap fund | 40.44% | 29.92% | 43,815.61 | 0.67 |
| Quant Mid Cap Fund | Mid cap fund | 35.10% | 29.63% | 3,781.48 | 0.76 |
| Quant Flexi Cap Fund | Flexi cap fund | 32.45% | 28.45% | 2,457.78 | 0.77 |
| Axis Small Cap Fund | Small cap fund | 30.70% | 28.23% | 18,615.72 | 0.55 |
| ICICI Pru Smallcap Fund | Small cap fund | 33.76% | 28.16% | 7,091.81 | 0.66 |
Note: The funds listed in the above table reflect their values as of Thursday January 18, 2024.
Disclaimer: The mutual fund schemes mentioned above are merely for informational purposes and are not investment recommendations. These funds are based on a 5-year CAGR, which is subject to frequent change. For more details and real-time information on the funds, visit Angel One.
Benefits of Investing in SIP
SIP investments offer several benefits, such as the following:
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Disciplined Savings
SIPs encourage regular and disciplined investing, which is beneficial for long-term financial planning.
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Rupee Cost Averaging
By investing a fixed amount regularly, you purchase more units when prices are low and fewer when prices are high. Over time, this could lead to lower average cost per unit.
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Power of Compounding
Small investments made regularly via SIPs can grow significantly over time due to the effect of compounding.
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Convenience and Flexibility
It is easy to start and manage a SIP. Often, it only requires a one-time setup for automatic deductions from your bank account.
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Suitable for Any Market Condition
Systematic investment plans reduce the impact of market volatility. This makes them suitable for all types of market conditions.
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Long-term Wealth Creation
For investors with a long-term investment horizon, SIPs have the potential to support substantial wealth accumulation. This helps achieve major financial goals as planned.
How to Calculate Your SIP Returns
Calculating the returns on your systematic investment plan involves understanding how your regular investments grow over time. One common method to estimate SIP returns is using the formula for compound interest, considering the frequency and amount of your investments, the duration of the SIP, and the expected rate of return.
To simplify this process, numerous online SIP calculators are available. You only need to input the monthly investment amount, the duration of the investment and the expected annual return rate. These calculators then use the compound interest formula to provide an estimated future value of your investment.
For instance, if you invest ₹10,000 in a SIP for 10 years, and expect an annual return rate of 14%, you can input these values into a SIP calculator. The online tool will then display the total returns you could earn from your SIP investments and the amount that your corpus could grow to.
Conclusion
If you want to begin investing in mutual funds but do not have a lump sum readily available, a systematic investment plan makes it possible for you to begin your investment journey without any delay. By investing small sums periodically, you also get the advantage of rupee cost averaging and the benefit of compounding.
Over time, as your income grows, you can increase the amount you invest in SIPs and diversify your portfolio across various assets and asset classes. This reduces the overall risk to your portfolio and also helps you optimise your risk-adjusted returns. The important thing is to ensure that your SIP investments align with your financial goals, so you can achieve every financial milestone as planned.
Mutual Fund Calculators:
| SIP Calculator | Lumpsum Calculator |
| SWP Calculator | Step Up SIP Calculator |
| Mutual Fund Returns Calculator | ELSS Calculator |
FAQs
Can I invest ₹100 daily in SIP?
Yes, you can make SIP investments with as little as ₹100. Several mutual fund houses offer investment schemes with the minimum SIP amount set at ₹100. However, you need to remain invested in such funds over the long term to enjoy potential capital appreciation.
Can I withdraw SIP anytime?
Yes, you can withdraw your SIP investments at any time if you have invested in an open-ended mutual fund scheme. While it is not typically advisable to withdraw your investments, this feature can be useful if you need funds urgently or if the fund is underperforming.
How do I start investing in SIP?
To start investing in a systematic investment plan, you should first research and select a mutual fund that aligns with your investment goals. Then, decide on the investment amount and frequency. Finally, select a mutual fund house or an investment platform, complete the required documentation and start your SIP.
What is the best way to invest money in SIP?
The best way to invest in SIPs is by choosing funds that match your risk tolerance and financial goals. Diversify across asset classes and review the performance of the funds regularly. It is also essential to invest consistently and increase the amount gradually to optimise returns and reduce risks over time.
When should I start investing in SIP?
It is advisable to start your SIP investments as early as you can. Ideally, you should start an SIP when you start earning so you can benefit from the power of compounding. Additionally, you may have a higher risk tolerance at a younger age. You can leverage this to accelerate the wealth creation process.
What is the maximum time to invest in SIP?
There is no maximum time limit for starting a systematic investment plan. You can invest via SIPs for as long as you want, for years or even decades, to harness the benefit of long-term compounding. The investment duration depends on your financial goals and investment strategy.
How do I start a SIP directly?
To start a SIP directly, you need to select a mutual fund that meets your goals. Then, register on the fund house’s website or the investment platform, submit the application form and paperwork and complete the KYC process to start investing.
