SIP or a Systematic Investment Plan is a medium to invest in Mutual Funds, which lets you invest regularly in the mutual funds, reducing your risk of equity, and benefiting you of Rupee Cost Averaging. If someone invest through an SIP route, one can be sure of great returns owing to the power of compounding.
If one is confused about Investing in a Mutual Fund and have some misconceptions regarding SIP's, let us illustrate the working of SIP with an example quoted below:
"Alpna Shah has invested in mutual funds through systematic investment plans (SIPs). She finds these easy to invest in as the amount is debited from her bank account and invested regularly. However, she doesn't understand how the investments are working as they are in 11 schemes, including taxsaving funds. She is also unsure about which one to access if she needs money. How can she organise these?
The SIPs are not investments, just a way to invest in mutual fund schemes. Shah's investments are in the underlying schemes, which are portfolios of shares, bonds and other securities. If her objective is to accumulate money over a period of time, she needs to invest in a diversified portfolio that evens out her risks. This should be the objective when she chooses funds to start SIPs in, and holding 3-4 well-diversified funds will serve this purpose. By starting SIPs in too many schemes, Shah may be overdiversified. She should retain 3-4 funds and close the SIPs in the rest.
When Shah begins an SIP and buys mutual fund units, a folio number will be allocated to her. She is free to add to the folio by investing any amount at any time. She can also top up or increase the SIP amount, renew the SIP for a higher or lower amount, add more SIPs on different dates to the same scheme in the same folio, buy schemes of the same fund house and hold them in the same folio, and move money from one scheme to another. While investing in a mutual fund, these facilities are available to her if she considers her folio like a bank account in which various activities can take place. Shah can consolidate her investments across 3-4 fund houses, with one folio each. If she provides her e-mail address in the folio, she can view one consolidated statement across fund houses to see how her investment is working.
Shah can access her money any time she wants, except if the investment is in a tax-saving scheme that is subject to a three-year lock-in period. An SIP is a facility to invest in and there is no restriction on redeeming the money. She does not have to stop an SIP to redeem it. She can invest as well as withdraw as required.
Shah should see an SIP as a process for wealth accumulation, and use her folios to make it easy for her to review and transact."
This is how SIP in mutual fund is one of the most transparent, rewarding and simple investment option for anyone, who wish to accumulate desired corpus for his short and long term goals and commitments.
Team Sangam Investments
Thank you for sharing such great information. It is informative, can you help me in finding out more detail on Best Investment Plan , i am very new to this field and wanted to understand the basics of Investment Plan .
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