Several retail investors are shifting from the traditional savings schemes to the fairly newer investment options such as mutual funds. Why? Well, these traditional savings schemes such as fixed deposits (FDs), recurring deposits, bank savings account, etc. fetch poor returns in comparison to stocks and mutual funds that help to build wealth over time. If you are someone who is highly skilled and knowledgeable about the markets, then you are probably better off with investing directly in stocks. However, if you do not have the resources and time to track the markets and do not have the requisite knowledge to invest directly in stock, you might consider opting for mutual fund investments. There are two distinct methods of investing your funds in mutual funds – either through SIP (systematic investment plans) or lumpsum investment. This article serves as a SIP investment guide for all investors – old or new.

What is SIP?

As mentioned above, SIPs help investors to dedicate their funds in mutual funds in a systematic and planned manner. Under this mode of investment, fixed and regular investments are made towards a scheme on a periodic basis for a fixed period of time. The investment amount, the duration of the investment, the periodic intervals are all pre-decided by the investor before investing in SIP.

When can you start an SIP?

There is no right time to begin investing in SIP. Yes, you heard us right. Unlike lumpsum mode of investment, you do not have to time the markets to attempt entering the markets at the right time. Because, let’s face it – timing the markets is not everyone’s cup of tea – it is easier said than done. In SIP mode of investment, as regular investments are made towards mutual fund schemes, an investor ends up investing across different market cycles. As a result, they would attain greater mutual fund units when the markets are in a slump than when markets are at its peak and vice versa. This helps to average out the gross cost towards buying mutual fund units. This phenomenon is commonly referred to as rupee cost averaging. Hence, an investor can invest in mutual funds via SIP at any time they deem fit right.

How much can you invest in SIP?

There’s no upper limit to invest in SIP. What’s more, SIPs allow investors to invest as low as just Rs 100 per month in mutual funds. This allows for economically backward sections of the society to invest in mutual funds, something they could have never dreamed of earlier.

What will happen if I fail to pay my SIP instalment?

There may be times when due to a financial crunch or any other reason, you do not have the means to pay your SIP instalment. Several investors have a misconception that if they miss their SIP instalments, their future SIP instalements will be cancelled, or they would be asked to pay a penalty. However, that’s a bit misleading. One’s SIP investments would not be cancelled unless an investor fails to make SIP payments consecutively for more than two times. If this happens and you default on your SIP investments, your bank may or may not charge you a penalty, depending on your savings account and bank policies.

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