What is SIP?

Systematic Investment Plan is a mutual fund investment plan where an investor can invest a fixed amount in a mutual fund scheme of his / her choice at a fixed frequency which can be weekly, fortnightly, monthly or quarterly. The bank ECS mandate/auto debit instruction ensures that the amount gets automatically debited on the chosen date and frequency from the investor’s bank account and invested in the chosen mutual fund scheme. The number of units so purchased depends on the Net Asset Value (NAV) of the scheme on the investment date. The systematic investment tenure can either be fixed or perpetual (Investor can choose the option ‘Until cancelled’. However, the investor can cancel the investment anytime by writing to the AMC. AMCs normally takes around 15 days’ time from the date of request made by the investor to stop the investments.

In Systematic Investment Plan, there is less risk of timing because investors buy units at different price points (both, at high and low NAVs). This is known as rupee cost averaging of purchase price and is especially effective in investment in equities as equity as an asset is volatile. Rupee cost averaging usually lowers the cost of acquisition during bear markets and aims to give superior returns in the long term.

Under Systematic Investment Plan you benefit from the power of compounding, which is nothing but interest earned on interest or profits earned on profits. The biggest advantage of mutual fund systematic investment plans is that, it is possible to create wealth with relatively small regular investments over a long investment tenure through the power of compounding. The table below shows a scenario analysis of the corpus built over different investment tenures and amount (assumption - 12% XIRR)

As per SEBI regulations, you need to be KYC compliant to invest in schemes of Mutual Fund through Systematic Investment Plans. You can now complete KYC requirements online through our website by complete Aadhaar based Paperless e-KYC process. Click here. You can fulfil KYC requirements by submitting filled in KYC form with your self-attested photograph affixed on the KYC form, to the AMC or the concerned RTA (different AMCs have different RTAs). The KYC form can also be downloaded from the AMC website. Along with the duly filled-in KYC form, you also need to submit self- attested copies of your identity and address proof (For example - it can be Aadhar Card or Passport or Driving License etc.) along with PAN card copy.

If you are submitting the KYC documents directly to the AMC or RTA, in person verification (IPV) will be required. For IPV, you will have to carry original documents of ID, address proof and PAN card. AMFI registered mutual fund distributors are also authorized to conduct IPV. Through a mutual fund distributor, the IPV can be conducted at your place. You can also do a Video KYC by visiting the AMC website which are offering this facility – This is a completely paperless process and helpful if you want to do SIP investment online.

If you are an existing mutual fund investor, you are likely to have fulfilled all KYC requirements. Therefore, you need not follow the process mentioned above and can start SIP investment online or through a mutual fund distributor immediately.

Bank account is a mandatory requirement for starting systematic investments. You have to provide your bank account details in the application form as well as in the auto debit mandate form commonly known as SIP registration form. A cancelled cheque of the mentioned bank account with your name printed on it is required as a supporting document.

In the application form you need to mention the scheme name in which you want to start the investment. Along with the scheme name you also have to mention the scheme option – growth or dividend and whether you want to invest in regular plan (through a mutual fund distributor) or in direct plan (directly with the AMC). If you are investing in a regular plan, the AMFI Registration Number (ARN) and EUIN number (Employee Unique Identification number) of the distributor has to be provided. If you are investing in regular plans, the distributor is expected to help you with filling out the application form and submission to the AMC

Any date SIP – This method allows you to select a scheme, its frequency and the amount. You have to mention the start date and end date of investment on the application form. Based on your mandate, the AMC will deduct the amount on the specific date and allot units to you. The systematic investment will continue till the end date chosen by you. You can continue your SIP account even after the investments have stopped and redeem whenever you want.

Perpetual SIP – Perpetual SIP or systematic investment plan is similar to Any Date SIP, the only difference is that there is no end date. While filling up the Systematic Investment Plan form, if you choose end period as ‘perpetual’, it will continue until you request the AMC to stop it. Once it is stopped by you, the AMC will stop deducting the instalment amount from your bank account. Post the SIP is cancelled, the units may continue to grow and you can redeem them whenever you want.

This facility helps you invest more and create larger corpus in the long run.

Disciplined investing – By choosing to invest at regular frequency, you bring discipline to your SIP investments as it is treated like any other fixed expenses in a month, be it paying rent, children’s school fee, buying household goods, going out during the weekend etc. Through disciplined investing, you stop worrying about how much to invest and when.

Wide range of schemes to choose from - You get a whole range of schemes to choose from – different funds from debt, equity and hybrid category – you can choose the one which suits your investment objective and risk appetite.

Convenient and easy to monitor – To start, all you have to do is fill up and sign the SIP application form along with the auto debit / ECS mandate form and the amount will be deducted from your bank account on the chosen date every month. You can also start Systematic investment plan online by visiting the AMC website without involving any paperwork. Progress of your systematic investments can be monitored through the account statements sent periodically by the AMC or alternatively you can login to the AMC website to check the investments details.

Low investment amount - You can start an SIP or Systematic investment plan with as low as Rs. 500 per month.

Investment diversification - Starting systematic investments in an equity/ hybrid mutual fund helps you diversify your investment risk as you invest in various sectors and companies.

Helps achieve long term goals - Systematic investment plan may help in achieving your long-term goals, like - Retirement, Children education, buying a house and wealth creation etc. You can start systematic investments by setting a target amount for the goal and investing monthly over the goal time period.

Tax Savings - By investing systematically in ELSS schemes, you can save taxes under Section 80C of The Income Tax Act 1961 on your investments upto Rs 150,000 in a financial year.

Rupee cost averaging - A simple approach to long term investing is discipline and commitment to invest a fixed sum regularly for a fixed time period and sticking to the schedule regardless of the market conditions. Rupee cost averaging in a way ensures that you buy more units when the units prices (NAV) are low and fewer units when the unit prices are high.