Systematic Investment Plan

Home

Personal Finance

Mutual Funds

Equity

What is SIP?

Mutual Fund investors ofter hear the word SIP or "Systematic Investment Plan".

In fact, SIP is so attached to Mutual Funds that most investors fee that SIP is the only way of investing in Mutual Funds.

SIP is a systematic method of investing in Mutual Funds.

A SIP is a planned approach towards investments. It inculcates the habit of saving and building wealth for the future by investing in small amounts but at regular intervals.

The core logic behind SIP investing is that you keep investing irrespective of stock market conditions.

The SIP application form is the instruction we give to the mutual fund house to start or stop a SIP.

Is SIP a financial product?

No. SIP is not a financial product.

It is just a method to invest your money in Mutual Funds schemes.

How does SIP work?

- Choose a mutual find scheme that you want to invest.

- Decide the investment amount and the duration (age)

- Decide the investment frequency (monthly or quarterly)

- As you invest, units are allocated as per ongoing market rate (called NAV or Net Asset Value)

- You will get more units when the price is low and less units when the price is high

- At the end of the exitAge, you can redeem the units and get the maturity amount

- You also have the option to redeem partially and extend the investment further

Features of SIP

- one of the best ways to enter equity market

- helps you to invest as little as Rs. 500/- every month

- helps you to develop the habit of discipline and regular investments

- no need to time the share market

- rupee-cost averaging

- compounding returns - small investments every month can create a big corpus over time

- flexibility in investing. You can increase or decrease your SIP amount

- some funds offer income tax benefits.

Mode of SIP

You can opt for one of the following modes to invest in SIP schemes.

1. Daily
2. Weekly
3. Fortnightly
4. Monthly 
5. Quarterly 

Duration of SIP:

- Minimum investment duration is 6 months

- Maximum investment duration is as long as you want to invest. There is no maximum limit on duration

SIP in Tax Saving Funds (ELSS)

- You can opt for SIP in almost all open-ended schemes including Tax savings mutual funds like ELSS (Equity Linked Savings Scheme)

- But, note that every installment amount of SIP will be locked for 3 years

- For example, if you opt to invest Rs. 1,000/- for 6 months, then every investment of Rs. 1,000/- will be locked for 3 years

What happens when Bank SIP gets rejected?

Sir is there any penalty by bank if sip fail due to insufficient fund?

Mutual Fund AMCs generally do not charge any fee or penalty for SIP getting rejected because of insufficient funds in the Bank Account.

However, Banks will use the opportunity to charge you. Usually the penalty will be equal to cheque bounce charges. Rs. 250 + taxes in most cases.

Is it irrespective of sip amount?

Yup. Because the charges are charged by the banker, the penalty will be same irrespective of the SIP amount.

Three consecutive fails in SIP will lead the AMC to stop the SIP. You will receive an intimation about this by email or by a letter.

In case the SIP got stopped, you can re-submit the SIP application again as if it is a fresh SIP.

Units that are allotted in the past for which SIP amount was paid or for lumpsums will remain as it is.

HDFC Mutual Fund allows till six consecutive installments not honored or the Bank Account [for OTM / ECS (Debit clearing) / Direct Debit / Standing Instruction] is closed and request for change in bank account is not submitted at least 30 days before the next SIP Auto Debit date. (Read http://www.hdfcfund.com/CMT/Upload/ArticleAttachments/760%20-%20Addendum%20for%20Change%20in%20terms%20and%20conditions%20of%20SIP.pdf)

Can I pause SIP?

If you are briefly out of funds and want to pause SIP, you can do so. However, only few mutual funds offer this facility.

Check with your AMC if they offer this facility.

Will SIP Auto-debit happen on Sundays?

AMCs will send the request to process SIP debit to banks. So the banks will do the debit transaction on bank working days.

So, logically, Banks do not do auto-debit on Sundays and bank holidays.

However, some banks will be proactive and do auto-debits, soon after the bank working day begins (post 12 Midnight of Sunday).

So, it is always better to keep healthy bank balance to avoid any unnecessary bank auto-debit bounce charges.

A good option to avoid this is to use IMPS to fund transfer to your bank account so that you maintain healthy bank balance to honor your SIPs.

How can we change / increase SIP amount?

SIP works on the concept of auto-debit with the mutual fund and bank.

Hence, to change or increase SIP amount, you need to stop the existing SIP and then give a fresh SIP application form for the new SIP.

There are several alternatives to counter this. But before going to them, let me explain the approach.

Changing SIP amount means that your financial goal has changed. So, think carefully as to why the need to change the SIP has occured.

Now, there are two easy alternatives to increase SIP amount.

1. Keep the existing SIP running. For the incremental amount, invest in the same scheme in SIP for a different date. It would be wise to keep both the SIPs 15 days apart so that you can take advantage of changed market conditions during the period.

2. Keep the additional money that you want to SIP aside and use it to buy in lumpsum every quarterly or so. If you closely track markets on a day-to-day basis, you can invest in market correction times. So market correction or quarterly-basis which ever comes first.

If you still want to change the SIP manage and want to increase / decrease the amount, you have to do these:

1. Stop the existing SIP by giving the SIP Cancellation form

2. Give a fresh SIP form along with the bank mandate (and blank canceled cheque)

You can stop SIP online if you started the SIP online. Otherwise paper application form will be inevitable.

You can always start SIP online irrespective of having filled paper form earlier or not.

Daily SIP

Some AMCs offer doing SIP on a daily basis.

Some popular mutual fund houses allowing this are: BOIAXA Mutual Fund, LIC Mutual Fund, amongst others.

Aditya Birla Sunlife Mutual Fund calls this feature Any Date SIP.

SIP Statistics in India

• As of Feb 2017, Indian do an SIP of Rs. 4000 crore per month in equity SIP.
• This means, Indians will be investing about Rs. 48000 Crore per year into Equity markets.
• Two years ago, the amount was mere Rs. 2000 Cr per month.
• FIIs invested Rs. 20568 cr in 2016. This means, Equity MF SIPs are likely to be similar or more than what FIIs put in.

When does SIP not work?

SIP works on the concept of average. It works in favor of the investor when the markets are volatile or downward trending but not when the markets are single trend only upwards. Since it is the nature of stock markets to be volatile in most cases, it is a good method investing, both in mutual funds and equity shares (provided you are with a discount broker).

SIP and Exit Load

When you start an SIP, the exit load is applicable for each of the SIP transaction.

For instance, if the SIP is done on 1-Jan-2016 and 1-Feb-2017 and so on.

Assume the scheme had a one-year exit load.

Today is 4 April 2017.

So those units that are allotted on 1st of Jan, Feb, Mar and April will not have any exit load but all those units allotted later (for the months of May, June etc.) will carry the load.

Is Cost averaging right?

If you want to make Money in investment, Don't average your loosing position. Then why Mutual Fund industry is supporting SIP?

What you said is right if it is one security (such as one company share).

We can always cost average a good company. Buy on dips is a good strategy in equity shares.

When Investing in MF (via SIP), we always spread our investment over a period of time.

SIP promotes cost averaging and inculcates discipline in investing.

Because one MF scheme invests in a number of stocks, we are not averaging one company but our investment.

When prices come down, we get more units and vice-versa. Fund manager always works to fine tune and optimize the investment.

SIP and Insurance

Some Mutual Funds provide free Insurance cover (in the form of a group insurance) for all SIP registrated investors.

The rational behind this is they want to encourage investing and this insurance cover is given for free at no extra charge.

For now, only Aditya Birla Sunlife Mutual Fund and Reliance Mutual Fund provide this feature.

It appears that SEBI is not liking the concept of mixing mutual funds and insurance and has been discouraging the practise.

Investors opting for insurance feature should not totally depend on this insurance feature alone and should have their usual pure insurance products at all times.

Consider this as a free add-on.

Never invest in mutual funds for the sake of insurance (or vice-versa).

Canceling an SIP

In general, if a mutual fund scheme is carefully and properly selected, SIP is the simplest method of disciplined investing.

However, in some cases, such as consistently poor performance of the scheme, you might want to stop or cancel an SIP.

If you wish to stop an SIP, you need to first find out how you started the SIP in the first place.

Have you started the SIP by filling a paper application form?

If so, you need to stop it using the Stop SIP form that can be downloaded from the official MF website.

In case you started the SIP from the official website (such as for example from Reliance MF website) or registrar website (such as MyCAMS) or from an distributor website (such as ICICI Direct for example), you will have to login at the appropriate website to cancel the SIP.

SIPs that are started offline cannot be stopped online.

SIP product names and variants

• Edelweiss Mutual Fund: Prepaid SIP

Related Topics

• Starting a SIP in MyCAMS
• SIP vs Lumpsum Investments
• Systematic Transfer Plan
• Mutual Fund Websites
• List of Mutual Funds serviced by CAMS
• Starting a SIP with MFU
• Mutual Fund Utilities (MFU)
• List of Mutual Funds with MFU

Home

Personal Finance

Mutual Funds

Equity