Systematic Investment Plan (SIP)

Systematic Investment Plan (SIP) is a coherence of simple, disciplined, and convenient procedure of one meeting his/ her goals related to finance. The aim of SIP policy funds  is to help one in making small investments at a regular interval of time to reach one’s goals and aspirations. In this, a person needs to invest in a mutual fund scheme at a fixed interval of time. The availability of the SIP calculator has also made the process of choosing the best-suited plan for a person much easier. The purpose of SIPs is to help an individual to get better returns from his/her investment.

Why should You buy an SIP?

There are plenty of benefits a person can get out of an SIP. It also creates a sense of security as the investments come out to be benefitting the investors.  Moreover, the automated investment options also allow not thinking or stressing overpayments as they are done all by themselves. Potential investors can also get a heads up by calculating their investment returns and see for themselves whether their choice of SIP policy scheme is well-suitable for them or not.

How Does Systematic Investment Plan (SIP) Work?

Systematic Investment Plan is an ideal mode of keeping some of your income aside and save it for your future use. The automated debiting of the chosen amount from one’s account also makes it easier to undertake and commit to. It helps in the enhancement of the saving streak of a person and aids in making future decisions.

But how does it work? Let’s take an example. Suppose, Anita wishes to invest in an SIP plan worth of Rs. 1 lakh. She would now get the option of investing a lump sum or making periodic payments. If she already can afford to invest the whole amount, and lock the amount in her chosen mutual fund plan, then this instance is known as lump sum investment. However, if she does not have the whole amount in hand, then it will be okay to choose a Systematic Investment Plan to invest her money into the said mutual fund. Say, she chooses an amount of Rs. 500 to be invested every month on a particular date, and then the amount will be automatically debited from her account at the determined date and be credited into the account of the fund. This will continue until the end of the time.

Features of Systematic Investment Plan (SIP)

Below are the key features and core benefits of the Systematic Investment Plan (SIP):

1: There are two modes available: monthly SIP investment and one-time investment. A person can choose the mode of investment as per his/her financial condition and convenience.

2: It also helps in saving income tax (Govt. Approved ELSSs), as stated in Section 80C of the Income Tax Act

Benefits of Systematic Investment Plan (SIP)

1: A person can initiate investing in SIP for an amount as low as Rs. 500. Moreover, the budget can also be increased at a later point of time easily by 15%.

2: The Rupee Cost Averaging is a boon when it comes to SIPs. As the market of equity is always volatile, a person would be able to invest in purchasing more number of units during a slump and vice versa, which in turn, would help the person in the reduction of cost per unit.

3: The growth factor is very much inherent in SIPs. High returns from SIP policy funds ensure never running out of money.

4: Moderate risks.

When should one Invest in SIP?

SIP plans can be initiated at any time. All the investors must ensure that they choose a scheme suitable for their intention that carries minimal risks. The factor that mostly dominates the choosing of the perfect scheme is the long-term goal set by investors for themselves. So, in brief, the sooner one chooses an SIP plan, the better.

Asset Management Companies

To start an SIP plan, one needs to interact with the Asset Management Companies, as the SIP plans would be construed and offered by them. In the list given below, we have handpicked some of the top Asset Management Companies for your convenience:

  • Axis Mutual Fund
  • Kotak Mutual Fund
  • Reliance Mutual Fund
  • HDFC Mutual Fund
  • SBI Mutual Fund
  • ICICI Prudential Mutual Fund
  • Aditya Birla Sun Life
  • Franklin Templeton Mutual Fund
  • UTI Mutual Fund
  • IDFC Mutual Fund
  • Tata Mutual Fund
  • DSP Blackrock Mutual Fund
  • LIC Mutual Fund
  • L&T Mutual Fund
  • Sundaram Mutual Fund
  • Invesco Mutual Fund
  • Canara Robeco Mutual Fund
  • JM Financial Mutual Fund
  • HSBC Mutual Fund
  • DHFL Pramerica Mutual Fund
  • Baroda Pioneer Mutual Fund
  • IDBI Mutual Fund
  • Motilal Oswal Mutual Fund
  • Indiabulls Mutual Fund
  • BNP Paribas Mutual Fund
  • Principal Mutual Fund
  • Mirae Asset Mutual Fund
  • BOI Axa Mutual Fund
  • Union Mutual Fund
  • Edelweiss Mutual Fund
  • Taurus Mutual Fund
  • Mahindra Mutual Fund
  • Essel Mutual Fund
  • PPFAS Mutual Fund
  • Escorts Mutual Fund
  • IIFL Mutual Fund

Best Systematic Investment Plans

There are various numbers of best plans one can choose from and each of these provides convenience and benefits as we have already mentioned above.

In the following table, some SIP plans have been compiled for you; this will also help you in analysing the comparison of SIP plans:

  • Equity Funds

    Equity Fund Return in 3 years Return in 5 years
    Mirae Asset Large Cap Fund 8.84% 8.12%
    ICICI Prudential Bluechip Fund 4.72% 4.91%
    SBI Bluechip Fund 4.11% 4.94%
    SBI Magnum Multicap Fund 5.91% 7.27%
    L&T India Value Fund 2.63% 6.41%
    Mirae Asset Emerging Bluechip Fund 10.5% 12.53%
    Kotak Standard Multicap Fund 7.72% 7.92%
    Axis Bluechip Fund 16.18% 9.14%
    Axis Focused 25 Plan 13.1% 9.76%
    Aditya Birla Sun Life Frontline Equity Fund 3.05% 4.05%
  • Debt Funds

    Debt Fund Return in 3 years Return in 5 years
    Aditya Birla Sun Life Medium Term Plan 3.06% 5.51%
    Aditya Birla Sun Life Credit Risk Fund 5.86% --
    Sun Life Savings Fund - Aditya Birla 7.75% 8.22%
    DSP Credit Risk Fund 2.94% 5.53%
    Short Term Debt Fund - HDFC 8.12% 8.36%
    L&T Low Duration Fund 6.57% 7.73%
    Nippon India Low Duration Fund 7.12% 7.63%
    UTI-ST Income Fund-Inst 3.07% 5.32%
    UTI Treasury Advantage Fund 3.23% 5.41%

Types of Systematic Investment Plan (SIP)

There are five kinds of SIP Policy Schemes:

Types Description
Top-Up SIP In this investment, the first instalment is always fixed. The amount of increment and its frequency are also pre-determined. This leads to the automatic increase in the investment amount at regular intervals of time.
Flexible SIP In this investment, the first instalment is fixed by the investor, and the successive instalments are calculated based on a specific formula, to invest more when the market is low and vice-versa.
Perpetual SIP In this investment, there is no end date specified. The investor is thus allowed to collect his fund at any point of time as per his wish.
Multi SIP Through this SIP investment, the investor is allowed to invest in multiple funds or schemes through a single window. Because of this, the investment helps one to create a diversified portfolio of SIPs.
SIP with insurance cover This kind of investment comes with a bundle of free life coverage insurance.

Things to Avoid While Investing in SIP

The following points must be taken care of by investors to get the most out of their SIP Plans:

  • Do not stick to a certain low amount for a long time. One should gradually increase their investment to notice any significant gain. Always ponder over the fact whether one can continue the investment of designated amount or not.
  • Abstain from choosing the wrong funds. Use the online calculators that are available to trace and predict the choice of plan and returns. Always determine the risk factors in prior.
  • Do not redeem your SIP investment upon having a decent gain. It is because high returns also depend on the time the money remains invested.
  • Always try to boost your investment with extra money apart from the regular monthly payments.

Tax Benefits of Systematic Investment Plan (SIP)

As per section 80C of the Income Tax Act, tax benefits can be availed in Equity Linked Savings Schemes where a person can save up to Rs. 1.5 Lakh every year if he/she invests in ELSS of Equity Linked Saving Scheme mutual funds. The only condition is that the ELSS scheme must be approved by the government.

Setting SIP Goals

Before we delve deeper into the procedure of applying for an SIP investment, it is very important to be clear about one’s long-term goals. As choosing a well-suited plan is inherently dependent on one’s goals that has been set in prior, we have given some guidelines to abide by if you are new to this realm:

  • Research well into various SIP plans.
  • Understand your risk tolerance before making an investment.
  • Understand that diversification across various asset classes is very much required for ensuring high returns.
  • If you are a beginner, then choose funds that hold a total corpus or asset size of 500 Crore or above.
  • Choose a fund that is in the market for five years or more.
  • Always stake your money in reputed fund houses to stay secure. Even though the market is an unpredictable sphere, but a reputed fund house at least ensures a bit of security.

KYC Registration

As per the guidelines provided by the Reserve Bank of India, KYC or Know Your Customer registration has been made mandatory before you opt for SIP mutual funds. The reason behind this is that KYC registration prevents instances of money laundering to a great extent. Currently, KYC is needed for almost everything related to economic commitments, such as you will need it when you open accounts or apply for loans, while carrying out transactions and investments while opting for credit/debit/prepaid cards while applying for bank locker availabilities, and so on.

Documents Needed for KYC Registration

For KYC Registration you would require to present the following set of documents:

For Address Proof (any one of the following)

  • AADHAR card
  • Passport
  • Permanent Driving Licence
  • Ration Card
  • Utility Bills like electricity/gas/water/phone (post-paid)
  • NREGA Job Card
  • Property Taxes or Municipal Receipts
  • Leave and License Agreement

For Photograph Identification proof (any one of the following)

  • Passport
  • Permanent Account Number or PAN Card
  • Permanent Driving License

Steps to Buy Systematic Investment Plan (SIP) Online

SIP policy funds can be bought online and there is no need to visit the AMC office anymore. An investor needs to follow the steps given below:

  • Complete KYC registration.
  • Visit the official website of the fund house.
  • Validate investor status by providing necessary credentials like PAN number, address proofs, etc. Here, the income tax department will send the potential investor a unique 10-digit identification number and will also check the KYC status of the investor.
  • Enter SIP registration details.
  • Pay the first SIP instalment for your chosen SIP scheme.
  • Complete the transaction.
  • Register the mutual fund as a biller with the investor’s registered bank account.
  • Set the autopay in the net banking login.

How to Compare Systematic Investment Plans (SIP)?

Many factors are used to compare various plans to make a choice based on suitability provided by a company. The trick is to compare SIP online with its own stated returns benchmark, and not with another. Analysing returns helps in a broad sense in comparing mutual funds. Tracking absolute returns for a couple of years is also a great way to make a good choice. Do not forget to check the returns benchmark set by the company. As per SEBI, every company must mention a benchmark for their returns for the convenience of the potential investors. It helps them in gaining insight into how the fund is functioning. Another parameter is the presence of the fund in the market and its history. The fund needs to have seen every kind of highs and lows in the market condition and needs to have overcome each of those.

List of Top 10 Companies

Given below is the list of top 10 companies for SIP investment plan for the year 2020-21.:

Name of Fund Net Assets (in Crore) Minimum SIP Investment 1 year (%) 3 years (%) 5 years (%)
SBI Small Cap Fund ₹3,493 ₹500 3.9 10.1 11.9
Mirae Asset Emerging Bluechip Fund ₹9,806 ₹1,000 3.3 9 11.8
SBI Banking & Financial Services Fund ₹1,490 ₹500 6.2 13.8 12.5
ICICI Prudential US Bluechip Equity Fund ₹482 ₹100 7.6 10.6 10.2
SBI Focused Equity Fund ₹7,694 ₹500 10.7 12.7 9.6
Canara Robeco Emerging Equities ₹5,625 ₹1,000 3.4 8.2 9.5
IIFL Focused Equity Fund ₹661 ₹1,000 17.2 10.5 9.3
Axis Focused 25 Fund ₹9,627 ₹1,000 12.2 13.1 9.8
Motilal Oswal Long Term Equity Fund ₹1,725 ₹500 6.2 7.9 10.2
Franklin India Feeder – Franklin US Opportunities Fund ₹1,279 ₹500 17.6 16.5 11.5

Systematic Investment Plans with Lowest Premium

The following SIP policy schemes come with the lowest premiums. One can start a SIP fund by giving an initial investment of Rs. 500. Moreover, if investors wish, they can also modify their SIP account by determining the increase or decrease of their monthly investments:

  • Axis Bluechip Fund
  • DSP Equity Fund
  • Invesco India Growth Opportunities Fund
  • Motilal Oswald Focused 25 Fund
  • Invesco India Contra Fund
  • IDFC Focused Equity Fund
  • Kotak Standard Multicap Fund
  • DSP Equity Opportunities Fund
  • HDFC Index Sensex Fund
  • Aditya Birla Sun Life Equity Fund
  • ICICI Prudential Bluechip Fund
  • Nippon India Large Cap Fund
  • Franklin India Focused Equity Fund
  • HDFC Equity Fund

To conclude, SIP scheme options are a great disciplinary way of saving up assets for a long-term goal. The high returns also ensure that you get more than you give. Plus, SIPs are a much safer way of dealing with saving money as it helps in keeping track of account records for the investor and also promotes a habit of saving. Last but not the least, the ELSSs also help in saving taxations which is nothing short of a boon.

Systematic Investment Plan (SIP) - FAQs

  • Q1. Why should I choose an SIP?

    A1. Investing in an SIP scheme is a great way to start a disciplined, controlled and automated way of investment. SIPs also provide high returns and help to make wealth, thanks to its power of compounding. It also creates a habit of saving up money in a regular fashion.

  • Q2. Is SIP good for long-term investment?

    A2. SIPs are great for long-term investment as it provides maximum returns when an investor locks in for a long-term investment.

  • Q3. What is the minimum amount I can invest in SIPs?

    A3. The minimum amount one can invest is Rs. 500 per month. There are many top-performing SIP schemes one can choose from that facilitate a minimum amount.

  • Q4. What happens if I miss the payment of SIP?

    A4. One does not face any issues if they miss a payment. Their account does not get deactivated. There are many mutual funds with various SIP scheme options; one of them is keeping an account paused if an investor wishes to do so.

  • Q5. IS SIP safe?

    A5. SIP is the safest investment process because it gives the investor to invest at a regular interval of time. It is a planned programme and helps in disciplining an investor into the habit of saving money.

  • Q6. Can I extend the duration of my SIP?

    A6. Yes. An investor is allowed to appeal for the renewal of his/her investment plan at the end of the tenure of their on-going investment.

Written By: Paisawiki - Updated: 26 March 2021