What is SIP?
A Systematic Investment Plan, which is popularly known as SIP, is a method that allows an investor to make disciplined investments in a mutual fund scheme. Through the SIP facility, an investor can invest fixed amounts in their preferred mutual fund scheme at fixed intervals. The fixed amount that can be invested through SIP can start from Rs. 500, and the investment frequency can be monthly, weekly, quarterly, semi-annually, or annually.
Unlike a lump sum investment, the SIP method allows investors to spread their investments over time. They can start by making regular contributions to mutual fund schemes and grow their wealth over time. The SIP investment plan is the best for those who are looking to build a long-term corpus by investing smaller amounts every month.
When you sign up for an SIP, you allow the Asset Management Company (AMC) to deduct a fixed amount from your bank account at a fixed date every month. This amount is then automatically invested in the mutual fund scheme of your choice.
Systematic Investment Plan (SIP) is a disciplined investment approach that helps in building wealth corpus for future by investing a pre-determined sum at regular intervals. Here are some of the benefits:
By taking the SIP route to invest in mutual funds, you stand a chance to build a corpus for your long-term financial goals. You can gain from the rupee cost averaging and the power of compounding to grow your wealth over the years. The biggest advantage of the Systematic Investment Plan or SIP is that you’re not required to time the market.
When you activate an SIP plan, you allow the fund house to deduct a fixed amount from your bank account on a specific date every month and then invest this amount in a particular mutual fund scheme. Every time an investment is made in a mutual fund scheme through an SIP, you’re allotted a certain number of fund units corresponding to your SIP amount.
When the market is bearish, the NAVs of all mutual funds are down, and hence, you will purchase more units. Similarly, when the market is bullish, the NAVs will be higher, and hence, you will purchase fewer units. Over the years, the cost of your purchase will average out and come out on the lower side. This phenomenon is known as rupee cost averaging.
For example, suppose you’re investing in a mutual fund scheme through an SIP of Rs. 1,000 per month. After investing for six months, let’s calculate the average cost of your purchase:
Month |
SIP Amount |
NAV |
No. of Units Purchased |
1st Month |
₹ 1,000 |
₹ 50 |
20 |
2nd Month |
₹ 1,000 |
₹ 52 |
19.23 |
3rd Month |
₹ 1,000 |
₹56 |
17.86 |
4th Month |
₹ 1,000 |
₹51 |
19.61 |
5th Month |
₹ 1,000 |
₹48 |
20.83 |
6th Month |
₹ 1,000 |
₹45 |
22.22 |
So, after six months, the total amount invested is Rs. 6,000, while the total units purchased is 119.75. The average cost of purchase turns out to be Rs. (6,000/119.75), i.e., Rs. 50.10.
Below are a few benefits of investing in mutual funds through a Systematic Investment Plan:
Convenience
The SIP investment plan is one of the most convenient methods for investing in mutual funds. When you invest via SIP, you are not required to invest multiple times. The SIP amount is deducted from your bank account every month and gets invested in the mutual fund scheme of your choice automatically.
Rupee Cost Averaging
When you invest in mutual funds via SIP, the cost of your purchase averages out over the years. This not only eliminates the need to time the market but also lessens the impact of short-term market volatility on your investments.
Power of Compounding
By investing in mutual funds through an SIP, you can reap the benefits of the power of compounding. It is because the profits generated from your mutual fund investments keep on getting reinvested to form a very large corpus in the long term.
Light on Pocket
Disciplined payment/ Investment Habit
Disciplined payment/ Investment Habit
Rupee Cost averaging
Tax Efficient
Rebalancing of Portfolio
Consistent Returns
Cost Averaging
Consistent Returns
Tax Efficient
Regular Income
Regular Income
Avoid market Fluctuation
Regular Income
Tax Efficient
There are two ways to invest in mutual funds - the SIP method or the one-time lump sum method. Rookie investors often get confused about whether they should opt for the SIP route or make one-time investments.
Investing through the SIP mode has several benefits, as mentioned above. The most notable advantage is that you’re not required to time the market. You can invest a fixed amount every month, and your cost of purchase gets averaged out in the long term. Also, you can start an SIP with as low as Rs. 500 and make recurring investments to create a large corpus for your long-term financial goals.
On the other hand, one-time investments can lead to severe losses during bearish markets. Also, it becomes necessary for the investor to time the market. That is why it’s always better to opt for the SIP route to invest in mutual funds.
An SIP account helps you invest fixed amounts in a mutual fund scheme at a fixed date every month. Having an SIP account allows you to make disciplined investments for your long-term financial goals. You can open an SIP account with the help of a mutual fund distributor or directly with the fund house.
To invest in SIP online, you will need to open an SIP account . To open your SIP account, you can visit the Tata Capital Moneyfy website or download Tata Capital’s Moneyfy app on your smartphone. You can complete your e-KYC and start investing in SIP online by linking your bank account with your investor account.
To understand which SIP is the best for you, you will need to know your income flow. If you are a salaried employee, monthly SIP is the best option for you. The frequency of investment depends on your investment needs and your income flow.
The NAV in SIP stands for “Net Asset Value”. It is the price at which an investor can sell or purchase their mutual fund units at a given point in time. Every time you invest in SIP, a certain number of mutual fund units get purchased as per their current NAV.
You can open your SIP account by directly visiting the Tata Capital Moneyfy website or by downloading the Moneyfy app. You can also take the help of a mutual fund distributor. To open your SIP account online, you will need to complete your e-KYC and provide a bank mandate.
To determine how much you should invest in SIP, you will need to assess your income and investment goals. Once you know how much corpus you need to create and in how much time, you can calculate the approximate amount that you should invest every month to create that much corpus.
Tax on SIP is calculated only at the time of redemption, and it depends upon the type of mutual fund and the duration for which they are held by the investor. If the SIP is for equity mutual funds, Short-Term Capital Gains (STCG) tax at a 15% rate is applicable if they are redeemed within 12 months. If the funds are held for more than 12 months and the gains exceed Rs. 1 lakh, Long-Term Capital Gains (LTCG) tax at a 10% rate without indexation is applicable.
You can get your SIP statement online by visiting Tata Capital Moneyfy website and logging into your investor account. There is also a portfolio section on the Moneyfy app to track your cumulative investments through SIP and my transaction section to track the status of all your transactions.
To withdraw your SIP amount online, log into your investor account, and place the redemption request.
The SIP top-up facility allows you to increase your monthly SIP amount at pre-determined dates. This facility helps you automatically increase your SIP investments to ensure that you stay ahead of inflation.
You can also stop your SIP online through Tata Capital’s Moneyfy platform. However, it’s never advisable to stop your SIP unless there is an emergency.