WHAT ARE SIP FACILITIES UNDER MUTUAL FUNDS (SYSTEMATIC INVESTMENT PLAN)?
Through the Systematic Investment Plan (SIP) feature, you can invest in mutual fund schemes by paying a certain sum each month, quarter, or half-year for a predetermined period of time. For instance, you would pay Rs. 8,000 every month for the following 12 months if you took out a SIP of Rs. 8,000 for a year on January 1, 2014.
The slogan "Modest is Powerful" tries to promote the concept of SIP, which aims to gradually increase small deposits into bigger ones. Because the sum is consistently invested, you receive more units when the value is low and less units when it is high. Because it enables you to smooth out market swings, the investments have a long-term low cost.
WHEN SHOULD YOU USE SIP TO INVEST IN MUTUAL FUNDS?
SIP is advantageous as long as markets are actually erratic or declining after you invested. SIP won't be advantageous if the markets ever turn bullish and start rising, and it may even provide worse returns than lump sum investments. SIP is a straightforward idea that is also very effective. Let's look at some reasons why it makes sense to invest in SIP mutual funds.
WHAT MAKES SIP A GOOD INVESTMENT?
- A modest payment every month is simpler for a person to make than a large payment all at once. The cost of investing via SIP is lower. Paying Rs 8,000 per month for a year is simpler than simultaneously investing Rs 96,000.
- The idea of rupee-cost averaging is SIP's main benefit. SIP enables you to purchase more units when the market declines and less units when the market rises.
- The ability to become a disciplined investor is SIP's additional benefit. Once you start a SIP, you are required to make a monthly contribution to a mutual fund, cultivating the habit.
- SIP offers a highly practical method of investing. It is just necessary to submit a completed enrollment form and a check, which must be placed on the day the mutual fund requests. Following that, units will be credited to your account and a notification will be sent.
- If applicable, capital gains are taxed on a first-in, first-out basis.
ARE THERE ANY BENEFITS?
- SIP investments don't perform well in bullish or long-term market conditions. When the market is rising and continues to do so over time, the units that are purchased each time are at a higher value than the preceding one, which might ultimately raise the average value relative to the initial lump sum investment.
- Once you invest through a SIP, all of your investments are individually locked for three years from the date of investment in tax-saving mutual fund schemes. Because of this, if you pay your first instalment in January 2014, it will be locked until January 2017, and so will the instalments you pay in February 2014 and so on.
Disclaimers
The material provided here is intended for general reading purposes, and the ideas presented are merely personal viewpoints, thus they cannot be regarded as advice from a professional or as guidance for the readers. Some factual and statistical data (past and anticipated) on the industry and markets were gathered from unaffiliated third-party sources that are thought to be reputable. It should be reminded that NAM INDIA does not in any way guarantee the correctness or legitimacy of such data and information since it has not independently checked their accuracy or authenticity. The same goes for their rationality as processing or arriving at their assumptions. These documents may contain comments and assertions that represent NAM INDIA's opinions, which may have been generated in part using the facts and information mentioned.
The readers are urged to obtain independent expert counsel and independently verify the information before making any investments in order to make an educated choice. Any direct, indirect, special, incidental, consequential, punitive, or exemplary damages, including lost profits resulting from the information in this material, shall not be made by the Sponsor, the Investment Manager, the Trustee, or any of their respective directors, employees, affiliates, or representatives, in any way.