The full form of SIP in mutual funds is Systematic Investment Plan. It is not an asset class or an investment instrument. It is, in reality, one of the methods of investing in mutual funds. Therefore, SIP refers to investment in mutual funds regularly with a fixed amount of money in a disciplined manner.The other method of investing in mutual funds is a one-time lump-sum investment.
SIP meaning is it helps you invest a fixed amount of money regularly in various mutual funds schemes depending on your financial goals. You have the potential to create long-term wealth, by investing a small sum of money through SIP.The SIP investment approach suits people with regular cash flow or a fixed salary.
For example – You want to build a fund of Rs. 5.4 Lakhs in 3 years for foreign travel trip. By starting a monthly SIP investment for Rs. 15,000, you can achieve the goal conveniently.SIP is the best way to get into the habit of saving and investing regularly. Apart from that, if you start SIP early you have a longer investment horizon to avail benefits of the power of compounding.
Additionally, a SIP investment avoids timing the market. SIP investment is least affected by the market volatility due to rupee cost averaging. When the markets are high, you purchase a fewer number of units as compared to the down market.
Investors need to give a mandate (authorization to invest via SIPs) to invest in MF
This can be done online by selecting the “Systematic Investment Plan” option while you are investing. But for the offline method, you need to fill a mandate form and submit it along with the application form.Also, on the form, you need to indicate your choice for the date (on which the amount will be invested) and the amount.If done subsequently, then the mandate forms can be submitted online through your MF account.
In the offline method, you need to submit the mandate to the office of the mutual fund house, Karvy, or CAMS.When you give a mandate, the fund house auto-debits your bank account for the indicated SIP amount through standing instruction. The funds are then transferred through ECS for investing in a MF scheme.
Likewise, the subsequent investment amounts will also be auto-debited at your indicated SIP interval. This way, you need not worry about missing any payments.
The SIP amount debited from your bank account is utilized for purchasing MF units. And, you are allotted MF units at the closing NAV of the day of money transfer or realization of the cheque.
Let us understand how it works with the help of an example.Suppose you start an sip of Rs. 1000 on the 5th of a particular month.Then Rs. 1000 will be auto-debited from your specified bank account on the 5th of every month and will be utilized in buying units of the MF. Also, the MF units will be purchased at that day’s closing NAV.With every payment, you will receive units of the particular MF scheme, which will get added to your mutual fund account.
Hence, SIP is like indicating “How Much” and “How Often” you will invest in a mutual fund scheme.The online investment is quick, hassle-free, and eliminates paperwork or frequent trips to the MF office for documentation.
You can create an online MF account with your email ID and password and submit the KYC documents (address proof and identity proof) online.For investing in mutual funds through SIP, you need to select the MF scheme aligned to your financial goals.
When you are prompted for payment methods, select the “SIP Investment” method to invest through the SIP route. Finally, you need to transfer money from your linked bank account.Scripbox is an online mutual fund investment platform that helps you do quick and hassle-free SIP investments.
With Scripbox, the investment is entirely paperless and is made in a secure manner. Additionally, account helps you track, manage, and redeem your mutual fund investments online.
Capital gains are profit made from the sale of an asset such as land, property, mutual funds, shares etc. To calculate capital gains, mutual funds are classified into types, namely, equity and debt funds. For equity funds, the short term is any time before one year from the purchase of the fund. While the long term is after one year from the purchase of the mutual fund. For debt funds, short term is any time before 36 months or three years from the date of purchase. While the long term is any time after 36 months from the date of purchase.
SIP can be done for both equity and debt funds. However, it is usually preferred for equity funds. Capital gains can be estimated using the following formula:Capital Gains = value of the fund (at the time of sale) – Cost of the fund.
In SIP investment done on a monthly basis, each SIP is considered as an independent investment. For example, when an investment is made in January 2019, the long term for that investment will be in January 2020. Similarly, for a SIP investment in February 2019, February 2020 is when the investment will be considered long term. So when an investor redeems the SIP investment before completion of one year, it is considered a short term.
