Everything that you wanted to know about an SIP
May 23, 2017
SIP or Systematic Investment Plan – A term which has off late been doing the rounds in the world of investing. Every financial advisor you meet will recommend a few SIPs to you. Do you often feel bogged down by the what(s), why(s) and how(s) of these SIPs? Read on to find out everything you need to know about SIPs before you move on to start one.
- Mode of investment and not a fund: SIPs are a mode of investment and not the fund or the instrument where you invest. Therefore SIPs don’t represent any asset class. They are a way of investing in any of the asset classes. In other words, they are more of an approach to investing.
- Defined periodic instalments: As the term indicates, SIPs are defined instalments which get invested on a pre decided date every month or quarter. For example, you can decide that Rs. 10,000 should get invested on the 10th of every month.
- ECS / Deducted directly from bank: Every SIP application is accompanied by a NACH mandate also known as an ECS mandate. By signing the mandate you authorize your bank to debit the pre decided amount on the specified date. This means that you do not need to put a separate transaction every month to make your investment. For example, when you sign the mandate, your bank automatically debits Rs. 10,000 on the 10th of every month and this gets invested without any action on your part. At CAGRfunds, we have introduced the concept of 1 mandate, which means you do not need to sign separate mandates for separate SIPs. One mandate for any number of SIPs across any number of mutual funds.
- Pre decided funds: When you make an application for registering a SIP, you also decide the funds where the investment shall happen every month or quarter. O every month, Rs. 10,000 gets automatically deducted from your bank account and gets invested in the fund you had selected.
- Start date and end date: You can choose the start date and end date of your SIP. Most funds have a criteria for minimum number of instalments (wither 6 or 12). However, having a perpetual SIP is beneficial for those who want to create wealth in the long run and want to follow a disciplined approach for the same.
- Any number of SIPs: You can have any number of SIPs. Each SIP is for a particular fund that you decide and hence you can have as many SIPs as the number of funds you decide to invest in.
- ELSS SIP: Taxation is a necessary evil and none of us should leave an opportunity to save our taxes. Section 80c of the IT Act gives us a benefit of Rs. 1,50,000 which we can deduct from our taxable income. Some of us who are more aware and believe in the potential of wealth creation through equity investment, choose to invest in ELSS funds (Tax saving mutual funds). However, very few of us choose the SIP route. ELSS investments if made through SIPs, helps reduce the risk arising out of market volatility to some extent. For example, you need to invest Rs. 60,000 to cover your 80C investments and you choose to invest in ELSS funds. You should invest Rs. 5,000 every month over a period of 12 months rather than invest Rs. 60,000 as a lump sum investment at one go.
How do we help?
At CAGRfunds, we help you with all your financial queries. Whether it is about a SIP or otherwise, we promise to give an answer to each one of them. For any query, post a comment to this article. Or whatsapp us on +91 9769356440