Systematic investment plans (SIP) make investments in mutual funds more inclusive. You can start with small investments every month. Investing a small sum in the mutual fund at regular intervals over a period of time is a more affordable and convenient option. The idea is to bring about a disciplined approach to investing.
The payments can be made at the choice of the investor. It can be either paid monthly, quarterly, or semi-annually. If you have invested in mutual funds via a SIP, a fixed sum of money is deducted from your bank account at the specified time interval. This sum is then automatically invested in the mutual fund scheme that you have chosen. You also have the option to raise or lower this sum. You can also increase the duration within which you pay. For example, you might have been spending a fixed sum of ₹25,000 once every six months. With the flexibility of the systematic investment plan, you can change it to a sum of ₹10,000 every three months.
This plan is especially beneficial for the salaried employees who can save the portion of the sum that they need to pay. You can now invest in a systematic investment plan for your mutual fund online.
With ICICI direct, you can invest directly into a mutual fund of your choice via the SIP option. You can start your investment in mutual funds by even investing a sum as low as ₹100 per month.
Investing in the SIP has the benefit of the rupee-cost averaging and compounding powers. In rupee-cost averaging, you can earn more units in the mutual fund scheme with the amount you have invested when prices go down. As you keep adding units to your total holding, there is a compounding of your savings.
How to choose the best SIP to invest in
It is difficult to find the best SIP to invest in. There are several categories of mutual fund schemes. Choosing one among all of them can be a bit intimidating. There are, however, a few steps to be followed that can help in selecting the best SIP. Let us see a few:
- You need to understand what your investment objective is. Every mutual fund is different and is classified based on asset class, risk profile, investment objective, reward profile and time. Each of these funds comes out with a scheme information document that lists out its investment objective. You need to have a thorough analysis of these objectives. You also need to see if they line with your investment and financial goals.
You need to answer the following questions:
- What are your investment goals?
- How many years do you need to achieve these goals?
- What is your risk profile?
- What is your expected return?
Once you answer these questions, you will have a better idea and understanding about the
type of mutual fund you want to invest in,
- Once you decide on the type of fund, you need to check the fund’s rating. Several agencies rank mutual funds. Most rating agencies rank funds only based on the fund’s Net Asset Value. Still, you should make sure the rating agency includes portfolio-based attributes like risk-adjusted returns, liquidity, asset quality, etc., in their evaluation. The ratings are an excellent cue to help you choose the fund.
- You need to look at the past performance of the fund. Though you cannot use the past performance to judge the fund’s future performance, it gives you a good idea of how the fund has performed over the years. Select a fund that has been in the market for a minimum of three years and go through its financial history. That will give you an idea of what to expect and help you decide if you want to invest in that fund. You also need to look at the past performance of the fund manager. You need to know if their investment style will suit yours.
- You also need to check the assets under the management of the fund. The assets under management are the total market value of the assets that a fund manages at a given point in time. You should also lookout for the expense ratio. That includes administration and management fees. The main expense to be considered is the exit load. That is the cost to be incurred while exiting from the scheme before the maturity period of the fund. Some funds have a lock-in period. Once you invest in them, you have to maintain the asset for the time specified. If you are not able to and want to sell, you will have to pay a fee called the exit load.
The SIP you invest in should tick all the above boxes. It should also be convenient and flexible. It should help in improving your savings and it should also be of low-risk. You should make sure you do enough research to pick a SIP plan that is suitable for you and meet your requirements. The SIP you invest in should be in line with your investment goals and help you invest with discipline and also save systematically.
Disclaimer – ICICI Securities Ltd. ( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. – ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai – 400 025, India, Tel No : 022 – 6807 7100. AMFI Regn. No.: ARN-0845. We are distributors for Mutual funds. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully. Please note, Mutual Fund related services are not Exchange traded products and I-Sec is just acting as distributor to solicit these products. All disputes with respect to the distribution activity, would not have access to Exchange investor redressal forum or Arbitration mechanism. The contents herein above shall not be considered as an invitation or persuasion to trade or invest. I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. The contents herein mentioned are solely for informational and educational purpose.