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What is SIP?

Simply put, a SIP refers to Systematic Investment Plan which is mode of investing in mutual funds in a systematic and regular manner. The method of investing is similar to your investment in a recurring deposit (RD) with a bank, where you deposit a fixed sum of money (into your recurring deposit account), but the only difference here is, your money is deployed in a mutual fund scheme (equity schemes and / or debt schemes) and not in a bank deposit, and hence your investments (in mutual funds) are subject to market risk.

A SIP enforces a disciplined approach towards investing, and infuses regular saving habits which we all probably learnt during our childhood days when we used to maintain a piggy bank. Yes, those good old days where our parents provided us with some pocket money, which after expenditure we deposited in our piggy banks and at the end of particular tenure we saw that every penny saved became a large amount.

SIPs too work on the simple principle of investing regularly which enable you to build wealth over the long-term. In case of SIPs, on a specified date which can be on a daily basis, monthly basis, or on a quarterly basis, a fixed amount as desired by you, is debited from your bank account (either through a ECS mandate or through post-dated cheques forwarded) and invested in the scheme as selected by you for a specified tenure (months, years).

Today some Asset Management Companies (AMCs) / mutual fund houses / robo-advisory platforms also provide the ease and convenience of transacting online. They have set up their own online transaction platforms, where one can do SIP investments by following the procedure as made available on the websites.

So, you have fewer hassles while investing as well as tracking your investment dates.

Benefits of SIP

1. SIPs are light on the wallet

   SIPs enable you to invest in smaller amounts at regular intervals (daily, monthly or quarterly). This in turn reduces your burden of defraying a lump-sum - at one go - from your bank account.
   
   If you cannot invest Rs 5,000 in one shot, that's not a huge stumbling block, you can simply take the SIP route and trigger the mutual fund investment with as low as Rs 250 per month.

2. SIPs make market timing irrelevant

   SIPs can help you manage (even-out) the market volatility well. Timing the market can be hazardous to your wealth and health. Instead focus on 'time in the market' in the endeavour to create wealth by selecting the best mutual fund scheme to invest.
   
   Studies have repeatedly highlighted the ability of equities to outperform other asset classes (debt, gold, even real estate) over the long-term (at least 5 years) as also to effectively counter inflation.
   
   Now one may ask: If equities are such a great thing, why are so many investors complaining? Well it's because they either got their stock or the mutual fund wrong or the timing wrong. In our opinion both these problems can be solved through a SIP in a mutual fund with a steady track record, stay invested for the long-term as the SIP route enables you to even-out the volatility of the equity markets effectively.

3. SIPs enable rupee-cost averaging

   Many a time, a SIP works better as opposed to one-time, lump sum investing. This is because of rupee-cost averaging. Under rupee-cost averaging you would typically buy more of a  mutual fund  unit when prices are low, and similarly, buy fewer mutual units when prices are high. This infuses good discipline since it forces you to commit cash at market lows, when other investors around you are wary and exiting the market. It also enables you to lower the average cost of your investments.

4. SIPs benefit from the power of compounding

   As SIPs subscribe you to the habit of investing regularly, it enables you to compound your money invested. So, say you start a SIP of Rs 1,000, in a mutual fund scheme following prudent investment system and processes, with a SIP tenure of 20 years and expect a modest return of 15% p.a., your money would grow to approximately Rs 15 lakh.
   
   So, over the long-term, SIPs can compound wealth better and systematically as opposed to investing a lump sum, especially when the journey of wealth creation is volatile.

5. SIPs are effective medium for goal planning

   All of us have financial goals – may be buying a house, buying a dream car, providing good education to children , getting them (children) married well, retiring etc. But all this comes with systematic financial planning. Very often many invest in the equity markets, with a motive of making short-term gains, and often ignore to use the equity markets as a window for long-term wealth creation, in order to achieve one's financial goals. You can effectively achieve your financial goals by enrolling for SIPs. The earlier you start the better it is.
   Despite the benefits, many investors have some misbeliefs about SIPs owing to incorrect information shared by friends, family, brokers etc.

SIP Calculator

What is a SIP Calculator?

With SIP calculator you can easily calculate the return value or the maturity value of the investments you have made over the period of time. SIP calculator is our online tool which enables investors to make an informed investment decision. Using this calculator, you can plan your important life and financial goals such as to buy a dream car, finance your own wedding, live a blissful retired life, etc. by just entering a few details such as:

1. Your SIP amount
2. Number of SIP payments (in months)
3. Number of Instalments made till date
4. Annual expected rate of return

The SIP calculator will generate the maturity amount of your investments within split of second automatically by one click. Gone are the days when distributors/ relationship managers/ agents could fool their clients by complicating the return calculations and promising unrealistic returns. This Systematic Investment Plan calculator empowers investors in their financial planning in a smart way. As this is the most convenient and user-friendly tool to know the future value of your investments. This will show how a slow but steady can win the race of financial freedom

Below is the formula for used for calculating maturity value of your SIP:

Formula used by SIP Calculator

	FV =	P * ( R * ( 1+i ) n -1 )	* ( 1 + i )
		i

FV = Future Value

P = SIP amount

i = compounded rate of return

As the returns are compounded for every investment instalment, monthly SIP will be compounded as: i/12.

Similarly, daily SIP will be compounded as i/365.

For instance, your SIP amount is Rs 10,000 for a tenure of 24 months. You expect 10% annual rate of return. Then the future value of your SIP would be calculated as below:

Here, P= 10000

i = 10% = (10/100)/12 = 1/120

N= 12 months

	FV =	10000 * ( ( 1+1/120) 12  -1 )	* ( 1 + 1/120 )
		1/120

Therefore, for the total investment of 1,20,000; amount at the end of the tenure will be Rs 13,20,000

Ok! hold on, surely this formula looks gibberish. But it is not.

All thanks to technology you do not have to perform these calculations by yourself. Our SIP Calculator will do the calculation for you.

It is a freely available online tool which you can use for calculating returns on your monthly SIP payments. This SIP Calculator will give you – an investor freedom to calculate the maturity value of all the payments you plan to make now and in coming future.

SIP Calculator: The Four Step Process

Our SIP calculator is simple to use and provides accurate results by answering just 4 questions.

1. How much is your SIP amount?

   You first need to enter the investment amount which are willing to forego on regular basis. Everyone has a varying income structure and risk appetite.

   Hence, enter any amount you wish to sacrifice say monthly or quarterly basis.

2. For how many months will you continue the SIP?

   Next you need to decide your investment horizon. In other words, enter the number of months you wish to make SIP payments.

3. How many months ago did you start the SIP?

   If in case, you have an ongoing SIP then you need to enter the number of instalments you have already made. If you have not started, then you may enter 0.

4. What rate of return do you expect p.a.?

   As earning good returns is your prime motive for investing in mutual funds, enter the rate of return you aspire to earn. With our calculator you can adjust different rate of interest and make your investment decision.

   Thus, by entering these few details our calculator generates accurate results. This in turn will enable you to judge the returns for your investments.

How to start a SIP?

Well, you have broadly two ways: offline and online.

In case of the former, approach the office a mutual fund house / mutual fund distributor / agent / relationship manager / investment adviser.  For prudent handholding, seek services of a Certified Financial Guardian who is a mark of trust and respect.  They can help you construct a robust investment portfolio based on your financial goals.

Here’s what you need to do to start a SIP offline

1. Select a mutual fund scheme that best suits your needs, investment objectives, financial goals
2. Fill in the Common Application Form / SIP form carefully and completely mentioning the name of the scheme and other details 
3. Provide your NACH mandate form mentioning all you SIP details
4. If the KYC is not done, fill in the KYC form and comply with it
5. Hand over the forms (as mentioned above) to the office of mutual fund distributor / agent / relationship manager / investment adviser / Certified Financial Guardian, or you can even directly submit to Registrar and Transfer Agents (RTAs) / AMC.

In case if you choose to SIP online, you can log on to respective mutual fund house’s website, or use other transaction platforms viz.  MFU , or opt for services of robo-advisory platforms and follow the steps and instructions mentioned.

But when buying into mutual funds, ensure that you are opting for only ‘direct plans’ owing to the benefit we explained earlier.

If you still have some doubts on SIP mode of investing, read on to debunk the 7 common SIP myths.

7 common SIP myths debunked

Myth#1: Only Small investors go in for SIP

Please note that SIP stands for Systematic Investment Plan (SIP) and not Small Investors Plan. Hence, it is incorrect to be under the illusion and arrogance that SIP, is meant only for small investors.

SIP is for everyone, if you wish to create wealth systematically. Just as a piggy bank and recurring deposit subscribes you to habit of saving regularly with the needed discipline, even SIPs do. And you a better rate of return as against parking money in fixed deposits, recurring deposits and endowment policies offered by insurance companies. By investing your savings in a systematic manner –daily, monthly, quarterly -- for a said tenure (period of SIP) helps you build a corpus earning a rate of return, in order to attain your financial goal.
 

Myth #2: Rupee cost averaging is possible through investing in stock too – then why SIP?

A SIP experimented on single scrip, can expose you to more volatility unlike SIP in mutual funds which reduces the risk, due to benefit of diversification, professional fund management and liquidity offered by mutual funds.

Moreover, as per the market cap bias (i.e. large cap, mid cap and small cap) which a fund follows, you can also strategically structure your portfolio depending upon your risk appetite.  Likewise, you can structure your portfolio on the basis of the style (viz. value, growth, blend, opportunities, flexi-cap, multi-cap etc.) of investing followed by the mutual fund.  And by adopting the SIP mode of investing for mutual funds, you'll draw two major benefits: rupee cost averaging and compounding.

Myth #3: SIP mutual funds are different from lump sum mutual funds

Well many have this delusion. The fact is, there are no special schemes for SIP investments. SIPs are just a mode of investing. 

Myth #4: Lump sum investments cannot be done in a scheme, where a SIP account exists

SIP as you know by now, is just a mode of investing in mutual funds. Hence, pumping a lump sum amount to a mutual fund where your SIP exists is possible. So, say you have a SIP of Rs 1,000 going on in a mutual fund scheme and suddenly you have a surplus of say Rs 50,000, you can pump a lump sum amount to your on-going Rs 1,000 SIP account.

Myth #5: I'll be penalised if I miss one or two SIP dates

While enrolling for the SIP mode of investing you are required to provide a NACH (National Automated Clearing House) mandate from NPCI (National Payments Corporation of India) form along with the common application form. Your SIP details (as selected) are already mentioned in this mandate apart from the SIP form, thus your bank at regular SIP dates keeps debiting the SIP amount in favour of the fund where you have opted a SIP. The start date and end date is mentioned in these forms. You also furnish has your contact details so that you're update on your transactions. Hence, the question of missing dates usually doesn't arise.  

However, for some reason – say, you haven't maintained the balance in your bank account – and a SIP instalment doesn't get debited, you simply miss that instalment, but the folio / account remains active for further SIPs to debit from the bank account. So, it's not like the  EMI (Equated Monthly Instalment) of your loan , where you miss an instalment; you are penalised. 

Similarly, if you're facing financial crunch, today fund houses also allow you to pause your SIPs for period of 1 to 3 months until normalcy returns. So, a short-term crunch should not be a cause of worry for your SIPs. SIP pause facility is explained at great length in ensuing part of this editorial piece. 

Myth #6: Markets are high to start a SIP

Well, if that's what you think, then you should be starting a SIP immediately. That's because as the market corrects you would by accumulating more number of units, with every fall in the NAV, thus enabling you to lower you average purchase cost. And, as the markets, post the correction surge once again, you would gain as the yield will work to be higher.

Myth #7: In a tax saver SIP, entire money can be withdrawn after 3 years

In case of a SIP in tax saving mutual funds (commonly known as  Equity linked Saving Schemes  – ELSS), very often a delusion exists that, the entire investment in a tax saving mutual fund can be withdrawn once the lock-in period is over. But that's not the case! 

The fact is: your every instalment of SIP should have completed the lock-in tenure. So say if you put in Rs 5,000 through SIP in the month of January 2017, the lock-in period for only 1 instalment (i.e. January 2012) will get over on January 2020. While other SIP instalments need to complete 3 years as well.

Go ahead and take SIPs today!