Building Wealth Through Systematic Investment Plans (SIPs)

A systematic investment plan or SIP is the most convenient way of investing in a mutual fund scheme. Through an SIP, you can stagger your investments over time by investing a fixed sum at regular intervals. The frequency of your SIP can be weekly, monthly, quarterly, or bi-annual, as per your comfort. SIPs are open-ended, meaning you can initiate or terminate an SIP at any time. There is an option of pausing your SIP for a while if you don’t have enough money to invest. There are no penalties levied on the investors for terminating or pausing their SIP.

It is never advisable to stop your SIP unless you have achieved your investment goal. The market movements shouldn’t influence your decisions. Remember, the longer you stay invested, and the more you invest, the higher your return on investment will be. Once you have decided to stop an SIP, you need to inform the same to the fund house. You can do this by logging in to your mutual fund investment account held with the fund house and fill and submit the ‘stop SIP’ form. Alternatively, you can also visit the branch of a fund house and submit a duly filled SIP cancellation form. If you had activated ECS, then ensure to inform your banker to cancel it at the earliest.

You can stop your SIP online by logging in to your mutual fund investment account with the fund house and submit ‘Stop SIP’ form. This facility is also available at FINDOLA Mobile Application if you have invested with us. You can terminate an SIP within a few clicks at the comfort of your home.

A systematic investment plan or SIP is the most popular way of investing in a mutual fund scheme. Through an SIP, you stagger your investment over time as you invest a small sum at regular intervals. Your SIP frequency can be weekly, monthly, quarterly, or bi-annually, as per your comfort—every SIP instalment results in purchasing of the new fund units at the prevailing NAV. Over time, the cost of purchase of fund units averages out and turns out to be on the lower side. When you continue your SIP when the markets are down, you purchase more fund units while you purchase a fewer number of units when the markets are down. Therefore, you get the benefit of both falling and surging markets. This is referred to as rupee cost averaging. You can benefit from realising higher capital gains when the markets have peaked as your purchase cost gets averaged out and turns out to be on the lower side.

An SIP account is an arrangement made by the fund houses that allows you to invest a small amount of money into your choice’s mutual fund plan at regular intervals. Having an active SIP account helps you instil a sense of financial discipline over time as you are forced to set aside a fixed sum at regular intervals.

You can invest in SIP online by signing up for an investment account with the fund house or through FINDOLA App of your choice . Before you can initiate an SIP into a mutual fund of your choice, you need to undergo KYC verification. You will only need to provide your PAN card, proof of address, and your photo in the prescribed format. Once you have completed your KYC verification, you can start investing in SIP online by linking your bank account with the investment account.

Before deciding on the SIP suitable for your profile, you need to understand your cash flow. If you are a salaried employee, then investing through a monthly SIP is suitable as you get your salary on predetermined dates, which helps you invest regularly. If you want to purchase fund units more frequently and optimise the cost of purchase of fund units to the fullest, then you may consider investing through a weekly SIP. If you get performance-based bonus payouts on a quarterly or bi-annual basis, then you may consider investing via a quarterly or bi-annual SIP.

Net asset value (NAV) is the price at which investors can purchase or sell mutual fund units. The NAV of most mutual funds is updated on a daily basis after the business hours. All mutual fund transactions happen only at the prevailing NAV. Every time you invest via an SIP instalment, your cost of purchase will be the prevailing NAV.

Some fund houses don’t allow modifications in the SIP. In this case, you can initiate a new SIP with the amount you’d like to invest. In case your fund house has provisions to top-up your SIP, then you can do so by logging in to your investment account held with the FINDOLA Mobile Application. If you want to automate increasing your SIP amount, then you may consider investing via step-up SIPs. These SIPs automatically increase your SIP amount at regular intervals, and you only have to maintain sufficient balance on the predetermined dates to facilitate smooth investment.

To determine the amount that should be invested through an SIP, you need to assess your requirements and investment tenure. It entirely depends on these two things. However, your need to note that the more you invest, the faster you will inch towards your goals. 

The tax implications on the redemption of units purchased through an SIP is slightly complicated. Consider the following example. You invest in an equity fund through a monthly SIP which lasted for 12 months. Now, if you decide to redeem your units after 15 months, then those units that were bought through the first three SIPs provide long-term capital gains as their holding period exceeds 12 months. Long-term capital gains of up to Rs 1 lakh a year are tax-exempt. Any long-term gains above this limit attract a long-term capital gains tax at the rate of 10%, and indexation is not allowed. The units purchased after the third months would not have completed a holding period of 12 months, and hence the capital gains realised through these units are considered short-term. These gains are taxed at 15% plus applicable surcharge and cess.

You can accumulate Rs 1 crore in your investment account by following the simple rule of 15*15*15. It says that on investing Rs 15,000 through a monthly SIP for fifteen years in a mutual fund scheme that offers annualised returns of 15%, your investment account would accumulate Rs 1 crore at the end of 15 years.

An equity-linked savings scheme (ELSS) is a popular Section 80C investment which offers tax deductions of up to Rs 1,50,000 a year. You can save up to Rs 46,800 in taxes a year with ELSS. You can initiate an SIP into an ELSS fund of your choice by creating an investment account with the respective fund houses. Once you have your investment account and have undergone KYC verification, you can initiate an SIP by linking your bank account with your investment account. Note that the fund units bought by every SIP instalment are locked-in for a period of three years from the date of purchase.

If you are to change the mutual fund scheme into which you are investing via an SIP, then, you should essentially terminate the SIP into the existing fund at first. Then, you need to switch funds. For this, you will have to redeem your units held with the current fund at the current NAV. After that, you will purchase the units of a new fund at the prevailing NAV. You have to pay applicable tax on the capital gains realised and exit load if any. Once you have completed the switching process, you have to initiate a fresh SIP.

You can initiate an SIP into an ELSS, the most popular tax-saving investment under Section 80C of the Income Tax Act, 1961. Every SIP instalment into an SIP counts towards tax deductions under Section 80C. You can claim a tax rebate of up to Rs 1,50,000 and save up to Rs 46,800 a year in taxes.

Extended Internal Rate of Return or XIRR is a technique to calculate the returns when there are several transactions being made at different time periods. XIRR can be considered your own return rate, which is the actual returns earned by your investments. It is a single rate of return which covers all your investments (and redemptions) made through every instalment of your SIP and amounts to the total value of your investment. XIRR can be calculated on an excel sheet. You can easily calculate XIRR on an excel sheet using the following command; XIRR(value, dates, guess)

An SIP top-up is an option which allows you to increase the ticket size of your SIP at predetermined dates. This option helps you stay ahead of inflation as you are automatically increasing your investments.

A one-time mandate (OTM) is a banking process which automates your SIP investment. By submitting an OTM form, your banker will credit a fixed sum at regular intervals and invest in the mutual fund scheme of your choice at the predefined dates. Opting for a one-time mandate makes your entire investment process seamless as you don’t have to invest manually.

Unlike traditional investments, mutual funds don’t provide returns at a fixed rate. It completely depends on the performance of the underlying securities in the portfolio. However, long-term investments made in equities have more often than not delivered returns in the range of 12% to 15%. The longer you invest via an SIP, the more the returns you get on your investment.

A regular systematic investment plan (SIP) gets terminated at a predetermined date. You will notify your banker to terminate your ECS or standing instructions after a particular number of instalments. There is no predefined date on which the SIP would get terminated in the case of a perpetual SIP. The SIP continues until you stop it. Investing in mutual funds through a perpetual SIP is suitable for long-term investors having an investment horizon of longer than seven years.

A systematic investment plan (SIP) is a way of investing in mutual funds The safety of your SIP investment depends entirely on the underlying securities in the portfolio. However, investing in mutual funds via an SIP is considered to expose you to lower levels of risk as you stagger your investment over time and thereby minimising the exposure towards the market. In simple words, you don’t invest a large sum at once and bet on the markets by investing through an SIP.

Most fund houses allow modifications in the date of SIP for which investors are required to submit a common transaction slip. Until your date of SIP has changed, you may consider pausing your SIP. Alternatively, you can terminate your ongoing SIP and initiate a new one and the transaction date you are comfortable with.

Investing in mutual funds via an SIP is the best option you have as it allows you to stagger your investment over time. Through an SIP, you can invest a small sum at regular intervals. The frequency of your SIP can be weekly, monthly, quarterly or bi-annually, as per your comfort. You can initiate or terminate your SIP at any time, and the fund house has no say in this. You can also pause your SIP when you are running short on cash. There are no penalties levied on pausing or stopping your SIP. Investing via an SIP is the best as it offers a great level of flexibility.

If you are to withdraw/redeem your investment made in a mutual fund via an SIP, then you have to place a redemption request. This can be done by logging in to your investment account held with Findola. Alternatively, you can also redeem your units via an authorised RTA. 

Recurring deposits and investing in a mutual fund scheme via an SIP have become popular among individuals earning a regular income. These options allow you to stagger your investment over time as you can invest a small at regular intervals. Recurring deposits offer a fixed rate of return and require you to invest a certain amount every month for a fixed duration. On the other hand, SIPs are open-ended, meaning you can initiate or terminate your SIPs at any time. Investing in a mutual fund via an SIP is a better option as you get the potential to earn much higher returns than a recurring deposit.