Each one of us dreams for something to be achieved and achieving those dreams is easy with the help of Systematic Investment Plan (SIP). In SIP a fixed amount is invested (chosen by the investor) on regular basis in mutual fund scheme chosen by the investor.
ADVANTAGES OF SYSTEMATIC INVESTMENT PLAN
Systematic Investment plan has multiple advantages. These are as follows:
- It is a disciplined approach money is invested on regular interval
- Ease of Investing as you can sign ECS mandate with company where on particular date SIP amount will be debited automatically
- Timing of the market is not required as due to market volatility your disciplined approach is automatically timing the market
- SIP is considered of having 2 powerful Investment strategies:
- Rupee Cost Averaging –
As investment is done on regular basis thus the investor buys units at all different levels due to which the average cost per unit gets maintained. This is because the investor buys more units when the price dips and few units during high price.
- Power of Compounding
Through SIP one is able to create Big Investments over time. Because by investing regularly through SIP benefit gets compounded. This is done in a way that the money you invested earns your returns and the returns you earned will further earn you returns. Thus, in this way the small regular investments you made grow into huge investments over a period of time.
- Investor does not face any burden as the amount chosen by the investor is easily manageable for investor because you can start with as low as INR 500 per month
- Benefits of starting early are reaped by investors, as the more time you give to your investment will help in compounding
HOW SIP WORKS?
- Investor has to decide the amount and the interval on which he wants to invest money (monthly or quarterly) as per one’s convenience
- It is done either through ECS (Auto debit) or through postdated cheque
- Investor is required to fill an application form and SIP mandate form (to mention SIP date) or they can start online
Note: If the investor is new to invest in mutual funds then KYC forms also need to be filled provided the investor wants to start a SIP of more than INR 4000
- The forms and cheques can be submitted to the office of the Mutual Fund / Investor Service Centre or nearest service centre of the Registrar & Transfer Agent.
HOW CAN YOU PLAN FOR YOUR SIP?
- Jot down your dreams and financial goal to be achieved through SIP
- Decide an amount you will be able to invest comfortable. Also, consider your financial goal while deciding the SIP amount
- Choose the scheme in which you want to invest and the way of investing whether through ECS or post-dated cheque
- Try to make investment portfolio well diversified or in case you are new to this then you can also take help of Financial planner through whom you can start SIP
WHAT IS STP & SWP?
SYSTEMATIC WITHDRAWAL PLAN (SWP):
- SWP stands for Systematic Withdrawal Plan
- Some people have a lump sum amount available and they want the same to be invested. But, require a regular income from that lump sum amount to meet their
- Day to day expenses or wants to invest that particular set amount in another portfolio. In such a case SWP comes into the picture.
- As the name suggest SWP refers to plan designed to systematically withdraw a certain set amount on regular basis from your existing investment portfolio.
But investor needs to consider below mentioned points before opting for SWP:
- Reasonable amount of Money
An investor should have reasonable amount by which he can fulfil his regular withdrawal over the desired time frame.
- Exit load
If the investor is choosing for SWP then investor needs to thoroughly study if any exit load is applicable on that scheme or not.
As there are is no exit load on liquid funds. But another type of funds in which withdrawal in which exit load might get applicable.
- Withdrawing any amount from your portfolio is considered equal to units getting sold. So the taxation which is applicable to any asset class will be applicable here as well.
SYSTEMATIC TRANSFER PLAN (STP)
STP stands for Systematic Transfer Plan. STP is designed to systematically transfer a fixed amount chosen by an investor from one scheme to another within same fund house. To avail it a mandate form is required to be filled by the investor.
By following below mentioned point’s proper use of STP can be done-
- This option is ideal if a large amount of investment is made in a particular debt scheme and would like to enter in equity in systematically
- It can help you earn returns from investment and further earning returns on returns by investing in different scheme
- Transferring any amount from your portfolio is considered equal to units getting sold. Thus, the tax is deducted.
- STP option is available in the same company from one scheme to another