KNOW MORE ABOUT SIP

What is SIP and Why should one start a SIP

SIP, or Systematic Investment Plan, is an investment strategy that allows individuals to invest in mutual funds regularly over a specified period. It involves investing a fixed amount at regular intervals, typically monthly. SIP offers several advantages, making it a popular investment method. Firstly, it promotes financial discipline by encouraging regular savings. Secondly, it provides the benefit of rupee cost averaging, allowing investors to buy more units when prices are low and fewer units when prices are high. Additionally, SIPs offer flexibility and convenience, as investors can start with a small amount and increase it gradually. Overall, starting a SIP is a wise choice as it helps inculcate disciplined investing habits and offers potential for long-term wealth creation.

What is an SIP?

SIP, or Systematic Investment Plan, is an investment option provided by mutual funds that enables investors to invest a fixed amount at regular intervals, typically monthly or quarterly. It promotes the habit of regular savings and investing, regardless of market conditions.

What are the benefits of SIP?

The benefits of SIP investment are several. A few of them are rupee cost averaging, disciplined investing, flexibility of investment & amount, long term wealth creation as a resultant of compounding effect.

How to start an SIP?

Starting an SIP is easy. First, you need to select a fund that is best suited to your long-term goals and risk profile. You can do this yourself, or you can take the help of a professional financial advisor. Once you have zeroed-in on a fund, you need to fill the SIP application form, post which a fixed amount is deducted from your bank account every month and directed towards the mutual fund you choose to invest in.

How much return can I expect on an SIP investment?

Unlike traditional fixed income products, Mutual Fund investments do not provide a guaranteed return. But, historically, over a long-term, investments in Equity Funds have generated better returns than traditional fixed-income products. Having said that, Mutual Fund investments are subject to market risks. You are advised to read all scheme related documents carefully before investing.

What are some of the best SIP plans?

There is no such thing as a “Best Mutual Fund.” It is a myth. Every fund has a unique investment objective that caters to the needs of different investors. You need to select the right fund basis your risk appetite and time-frame for achieving your life goals. You may decide to invest either via SIP or Lumpsum.

What is meant by “SIP frequency?”

SIP frequency refers to the pre-defined interval at which a fixed amount, mandated by you, is deducted from your bank account. You can go with a monthly, quarterly, semi-annual, or annual frequency.

Is there a minimum amount to start an SIP?

The minimum amount to start an SIP varies from fund-to-fund. Having said that, many funds in India now let you start an SIP at 100 rupees. Investing via SIP is not limited to small amounts. You can invest any amount you want. There is no upper limit on SIP. Minimum tenure of SIP is 6 months, whereas there is no maximum tenure.

What is the maximum amount I can invest through SIP?

Investing via SIP is not limited for any mutual fund scheme. You can start an SIP with any amount that you wish. There is no upper limit on SIP.

Can I have multiple SIPs?
Yes, you can start more than one SIP. There is no restriction on the number of SIPs you can have at a given point in time.

Does SIP offer the options of Growth and Dividend?
Yes, when you start an SIP, you can choose the option of either Growth or Dividend.

Can I switch between the options of Growth and Dividend at any point in time?
Yes, you can any time switch your SIP from Growth to Dividend and vice-versa, in an open-ended fund, without a lock-in period.

Is SIP available for all types of mutual funds?
Yes, you can start an SIP for any open-ended mutual fund.

What is meant by “Rupee Cost Averaging?”

One of the main benefits of SIP is Rupee Cost Averaging. It simply means that you get more units when the market goes down and less when the market goes up. Thus, you average out the cost of total units bought. This helps you to optimize returns over the long term.

Can I change the SIP amount at any time?

Yes, you can increase your SIP amount at any point. There are two ways to do that. You can either start a new SIP with the additional amount or you can opt for a facility, commonly known as SIP Booster or SIP Top-up, that lets you increase your SIP instalment amount at a pre-defined interval.

Can I stop my SIP at any time?

Yes, you can stop your SIP instalment at any point in time. There are no charges levied for stopping an SIP. Moreover, you can withdraw the corpus accumulated through previous instalments.

Can I switch my SIP investment from one fund to another?

No, you can’t switch your SIP from one fund to another. You will need to stop the current one and start a new one in your desired fund. But, the corpus accumulated through past instalments, in an open-ended fund without a lock-in period, can be switched to another fund.

Will I incur a penalty if my SIP installment fails to get through due to an insufficient account balance?

There is no penalty levied by Mutual Funds if your account balance is insufficient when the SIP instalment is due. It’s just that your instalment for that particular month will not be processed, but your SIP will continue normally next month onwards, provided the balance is sufficient.

Can I invest in ELSS using SIP?

Yes, it is possible to invest in an ELSS fund through SIP.

What is the ideal investment horizon for an SIP?

SIP is a good habit of saving & investing a fixed amount regularly with the objective of creating wealth over the long term. Hence, an SIP should be done for perpetuity, unless you are starting an SIP for a specific goal that is due on a particular date.

Which SIP frequency is better – weekly or monthly?

Assuming the same rate of return, a weekly frequency will turn out to be a better choice as you get the benefit of compounding. Unfortunately, the market returns are not predictable. Hence, there is no correct answer as to which frequency is better. That being said, it is advisable to select the frequency based on your cash flow. Hence, salaried individuals prefer a monthly frequency for their SIP.

Should I invest in SIP directly or through an advisor?

There more than 1000 open-ended mutual funds in India. Selecting the right fund is always an uphill task. It requires in-depth knowledge of markets and mutual funds. If you have the time and the required skills to analyse the funds for finding the one that suits your needs and risk appetite, you can go for Direct funds. Otherwise, it is advisable to go with the professional financial advisors who will recommend you the right fund that is best suited to your needs and life-goals.

Is there any extra or hidden cost that I will incur for starting an SIP?

No, there is no extra charge or hidden cost for starting an SIP.

If the returns on my investment are negative, what should I do?
When facing negative returns, the most common mistake investors tend to do is to stop their SIP and withdraw the accumulated corpus. Ideally, if you have a long-term investment horizon, a market downturn should be treated as an opportunity to buy more to average out the cost of total units. This will help you to generate favorable returns when the market becomes positive.

What is meant by “SIP Booster” or “SIP Top-up?”
SIP Booster or SIP Top-up lets you increase the amount of your SIP installments at pre-defined intervals. This way, you don’t need to start a new SIP from time-to-time. The increase in the instalment amount can be a fixed sum of money or it can be a percentage of your current instalment value.

Which is better – Lumpsum or SIP?
The answer to this question depends on the stock market conditions. During upward trends, the lumpsum mode of mutual fund investment tends to give relatively higher returns whereas during falling markets, investments made via an SIP generally provides better returns than a lumpsum investment. Having said that, SIP promotes a habit of regular savings and investing, regardless of market conditions.

What is the Power of Compounding?
In compounding, interest is generated not only on the initial investment amount but also on the previously accumulated interest. In case of SIP, the regular re-investment of returns to generate compounding effects over time. Hence, it is advisable to start investing as early as possible to reap the maximum benefits of compounding.

What are the types of SIPs available?
Below are the types of SIP available on Kotak mutual fund website: 1. Perpetual SIP: Investors can choose a perpetual SIP with Kotak Mutual Fund, which continues indefinitely until the investor decides to stop or modify it. 2. Top-up SIP: Kotak Mutual Fund provides the option of a top-up SIP, allowing investors to increase their investment amount periodically by a fixed percentage or a fixed amount. 3. Smart SIP: In a Smart SIP, the SIP installment varies based on market valuations.

Do I need to log in on every SIP date to place the Mutual Fund SIP orders?
No, you typically don’t need to log in on every SIP date to place mutual fund SIP orders. Once you set up the SIP with your mutual fund provider, the SIP orders are automatically processed on the specified dates from your respective bank. You may need to ensure sufficient funds are available in your bank account and maintain an active SIP mandate.

How are SIPs taxed?
SIPs in mutual funds are taxed based on the holding period and the type of mutual fund. Equity-oriented SIPs held for more than one year are subject to long-term capital gains tax, while debt-oriented SIPs have different tax implications. For more details, investor must consult their financial advisors.