A mutual fund SIP, popularly known as Systematic Investment Plan, is a facility offered by AMCs to invest a predetermined amount of money in mutual fund schemes and grow the over time. This amount can be as low as Rs 500, invested periodically (say monthly, daily, yearly or quarterly) over a time frame, in order to reach a desired financial corpus.
On the day of your SIP, the SIP amount gets debited from your bank account and no. of units are allotted based on the mutual fund NAV of the day.
The basic motive is to remain invested, trust the process and grow in the process of investing your savings through mutual funds. By opting to invest through SIP mutual fund, the investor invests in a disciplined way for the long term without having to worry about the market dynamics and thus get benefited in the long-term due to rupee cost averaging and the magic of power of compounding.
Having understood the basic concept of SIP mutual fund, let us dive into some lesser known facts of this-
1. You can withdraw funds without stopping the SIP– In case you have invested in an open-ended mutual fund scheme, you can withdraw from the accumulated balance, in case of financial exigencies. Here, AMCs follow a rule called ‘FIFO’ or First in First Out, which implies that the units which had been invested first, also get withdrawn first.
2. ‘Pausing’ of SIP – An investor, in case of a financial crunch or emergency, can choose to ‘pause’ their SIP investment, for a few months, till they have a usual cash flow again. For this, one has to fill up a form and resume the investment once possible. This window of pausing differs, depending on the AMC – typically a maximum window of 6 months is allowed to the investor.
3. Start investing with a small amount – It is a common myth that one needs to have a lot of money for starting an SIP mutual fund. Contrary to this, the fact remains that an investor can begin investing monthly in a chosen SIP mutual fund, with as little as Rs 500, and then have the option to grow it with rise in income. So, students with pocket money can also start their investments from an early age.
4. SIP is possible in debt funds – Investors think that SIP can be possible only in equity funds, but this is not true. You can make periodic investments in debt mutual funds also. The choice purely depends on your capacity to take risks and your future financial goals.
In order to make the SIP investment journey a bump-free one, there are easy-to-use financial tools available at the disposal of the investor, such as the SIP Calculator. It gives one the advantage of planning without the hassle of manual calculation. It is fast, easy, can be accessed online and used as per convenience. It also gives confidence to new or potential mutual fund investors as they get more clarity on how much to start investing with and what they can expect out of this process.
In this read, we took a comprehensive look at the concept of SIP mutual fund investment, its lesser known facts to the public and how easily accessible tools like SIP calculator can aid the process of investing in the same.