*Systematic Investment Plan or SIP is one of the most popular ways of investing in mutual funds. According to AMFI, there are 3.56 crore SIP accounts as on 31st January 2021. Through SIP plans you can invest fixed amounts at regular intervals (e.g. weekly, fortnightly, monthly, quarterly etc.) in mutual fund schemes of your choice. There are several benefits of investing through SIP.

An SIP investment plan can be started by investing a small amount at regular intervals instead of having to commit a large amount in lump sum. 

You can start investing early in your working life, by investing from your regular savings through SIP. If you invest over a long period of time, you can benefit from the power of compounding. 

SIP investment may make you a disciplined investor. You continue to invest through market ups and downs, instead of reacting to market movements. Disciplined investing is the key to achieving your financial goals.

SIP may help you take advantage of market volatility through Rupee Cost Averaging. By investing through market highs and lows you reduce your average purchase price of units. 

SIP is convenient - The SIP instalments are debited automatically from your bank account and invested in the mutual fund scheme of your choice. You do not have the hassle of writing a cheque each time you want to invest through SIP plans.

How to start SIP Investment

SIP plans are available for most open ended mutual fund schemes. You have to first select a scheme according to your risk appetite and investment needs. At the time of investment (SIP registration) you have to provide an ECS (Electronic Clearing Services) mandate, which essentially are standing instructions to debit your bank account at fixed intervals (e.g. monthly) on a fixed date. You will get several choices of auto-debit dates which you can select according to your selected interval cash-flows. Financial advisors recommend that you select a date close to your usual salary credit date so that the SIP amount gets debited and not get rejected due to insufficient funds from your bank account. 

SIP Top-up

*Systematic Investment Plan or SIP Top Up allows investor to increase their instalments in SIP by a fixed amount or percentage at pre-determined intervals. For example, if you are investing Rs 10,000 per month through SIP, you can increase your monthly SIP by a certain amount every year. Alternatively, you can increase your SIP investment by a certain percentage every year. 

By using a SIP top up calculator we find that a monthly SIP of Rs 5,000 with annual top up of SIP of 10% can get you Rs 15.73 Lakhs whereas a SIP of same amount without Top up gets you only Rs 11.62 Lakhs (SIP period – 10 years and return assumption 12% V+CAGR) (for illustration purpose)

SIP Top-up has several benefits:-

You can start with a low SIP amount and gradually increase it annually with your income/savings growth.

As our income increases our standards of living and aspirations change. SIP Top-up automatically increases your savings / investments with growth in income and standards of living changes. 

SIP Top-up may help you achieve your goals faster.