How Does a Systematic Investment Plan (SIP) Work?
With inflation on the rise, the cost of living is reaching unprecedented levels. Therefore, it is pivotal to invest your money in instruments that are profitable, reliable, and relatively safe. One of the easiest ways to start your investment journey is a Systematic Investment Plan or SIP.
SIP is an investment option through which you can invest a fixed amount of money at regular intervals. The amount of the investment as well as the frequency can be decided by you on the basis of your financial goals.
How Does Systematic Investment Plan (SIP) Work?
If you are wondering how an SIP works, the answer is fairly simple. All you have to do is determine a fixed amount of money and the frequency of SIP investment. This frequency can be monthly, quarterly, or annual. Then you need to select a mutual fund scheme and the period of time you wish to invest in said scheme. Following the aforementioned decisions, you can simply set an auto debit for the pre-decided amount and set up your SIP. The fixed amount of money will be debited from your account in line with the frequency of the investment chosen by you.
You can track the performance of your SIP latest Net Asset Value (NAV) of the selected mutual fund in the stock market. Investing through an SIP is an excellent way of investing in mutual funds. By choosing the SIP route, you can accumulate a substantial corpus with the minimal investment of time and effort. A monthly SIP is an ideal option to manage your savings and investments in a systematic manner.
Why Should You Choose An SIP?
There are several reasons why Systematic Investment Plans are counted amongst the most preferred investment instruments. Not only are they easy to invest in and track, they also carry a host of benefits. Here are the major reasons why you must choose an SIP.
Simple And Easy To Manage
A Systematic Investment Plan is a simple investment avenue and one that does not need a high degree of attention or time. You can simply select a mutual fund scheme, choose the SIP amount and period and start investing.
The Power Of Compounding
By choosing a Systematic Investment Plan, you can benefit from the power of compounding. According to this principle, the return earned on your investments gets reinvested in the investment pool. This leads to the compounding of your investment income or earning return on return.
Flexibility
A Systematic Investment Plan is highly flexible. Not only can you choose the mutual fund scheme you wish to invest in, but you can also select the amount of the investment, the tenure of the investment, and the frequency of each installment. What is more is that you can increase your investment in an SIP by choosing the Top-up option (when required).
Rupee Cost Averaging
One of the elements that make Systematic Investment Plans an excellent investment tool is Rupee Cost Averaging. This principle leads to your aggregate investment cost staying more or less constant, even in the face of market fluctuations. When the Net Asset Value of the selected fund is high, you get allocated a lesser number of units. On the contrary, a higher number of units gets allocated to you when the NAV of the mutual fund falls.
High Return
Investing through an SIP can enable you to earn a higher return as compared to conventional fixed-income tools. However, since SIPs are market-linked investments, there is a risk element attached to them owing to market volatility.
Financial Discipline
Another key benefit of Systematic Investment Plans is that they can be the conduit through which you can inculcate a better financial discipline in your spending habits as well as your overall financial behaviour. Since a fixed amount of money is to be debited from your account by way of standing instructions, you can manage your expenses in a more prudent manner.
How You Can Achieve More With SIPs?
On the surface, a Systematic Investment Plan may appear to be an investment tool through which you can plan regular investments in a hassle-free manner. In reality, however, there is so much more that you can achieve through SIPs. Here are some of the things you ought to keep in mind in order to make the best of your investment in an SIP.
Select The Right Mutual Fund Scheme
The key to earning high returns from your SIP investment is selecting the right mutual fund scheme. This decision should be driven by your financial goals, risk appetite, and investment horizon.
Select The Right Amount For Your SIP Investment
The second important decision you must take is the amount of money that ought to be allocated to a Systematic Investment Plan. This amount should be determined after considering your income, expenses, and financial goals.
Select The Right Frequency For Your SIP
It is pivotal to choose the right frequency for your investment in an SIP. You can opt for monthly SIPs, quarterly SIPs, or annual SIPs.
Stay Invested For The Long Term
The returns from Systematic Investment Plans tend to be higher over the long term. Therefore, it is advisable to stay invested in your SIP for a long time.
Do Not Put All Your Eggs In The Same Basket
Since SIPs are linked to the market and are not immune to the turbulence that is characteristic of the market, it is prudent to invest in several SIPs. The key is to choose a diversified set of plans to balance your investment portfolio.
A Systematic Investment Plan is an excellent tool to invest a fixed sum of money for a long period of time. Not only can you enjoy relative convenience from such an investment, you can also benefit from a high degree of flexibility, power of compounding, and rupee cost averaging.
At m.Stock, you can invest in more than 5,000 mutual fund schemes through either the SIP route or lump-sum investment. We charge zero commission and offer a one click mode of subscription to an SIP. Visit m.Stock now and enjoy a paperless process of investing in a Systematic Investment Plan.
SIPs let you invest small amounts regularly, making it easier to stay consistent with your goals. With time, your money grows faster through compounding, helping you get the most out of your investments. Try our SIP Calculator to see how your money can grow and make smarter plans for your future.
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Can Mutual Fund Schemes Invest in Upcoming IPOs? - H1 Initial Public Offerings (IPOs) have become a buzzword among investors looking for high-growth opportunities. Whether it’s a unicorn startup going public or a reputed company entering the equity market, IPOs attract substantial interest. But what about mutual funds — can they participate in IPOs? And if yes, how does it impact you as an investor in a mutual fund? This article explores the role of mutual funds that invest in IPOs, the process behind such investments, and how you can benefit from this strategy. You’ll also gain insights into how fund managers evaluate IPO opportunities and which mutual funds are more likely to invest in them. Role of Mutual Funds in Equity Markets - H2 Mutual funds play a vital role in India’s equity markets. Managed by professional fund managers, these pooled investment vehicles collect money from multiple investors and allocate it across a portfolio of stocks, bonds, or other assets based on the fund's mandate. In the context of equity investing, mutual funds: Provide diversification to small investors Help in price discovery and market depth Act as long-term institutional investors Reduce risk through strategic asset allocation Given their market presence and influence, mutual funds also participate in IPOs, often subscribing to large portions of new issuances. But this activity is more nuanced than simply bidding for shares. Are Mutual Funds Allowed to Invest in IPOs? - H2 Yes, mutual funds in India are allowed to invest in IPOs — both in the primary market (where shares are first issued) and in the secondary market (where stocks are traded after listing). This means mutual funds can apply for shares during an IPO’s book-building process just like retail investors, high-net-worth individuals (HNIs), and institutional investors. SEBI regulations allow fund managers to allocate a portion of the fund’s assets to IPOs, provided the investment aligns with the scheme's objectives and risk profile. For instance: A large-cap fund may only invest in IPOs of companies expected to be included in large-cap indices A multi-cap or flexi-cap fund has more flexibility to take exposure across market capitalisations, including IPOs An ELSS fund (Equity-Linked Savings Scheme) can also participate in IPOs if it aligns with its tax-saving and equity investment objective So, the short answer is: Yes, mutual funds can and do invest in IPOs — but not all funds, and not always. Why and When Do Mutual Funds Invest in IPOs? - H2 Investing in IPOs offers mutual fund managers several strategic advantages, including: 1. Access to Early Growth Potential - H3 Many IPOs are of young, fast-growing companies. By investing early, mutual funds aim to capture the growth upside before the stock gains mainstream popularity. 2. Price Arbitrage Opportunities - H3 If a mutual fund believes that the IPO is underpriced relative to its intrinsic value, it may invest with the intent of benefiting from listing gains or long-term appreciation. 3. Portfolio Enhancement - H3 Some IPOs bring fresh sector exposure or innovation to the market. Fund managers may invest to diversify or rebalance the portfolio with new-age businesses, like fintech or EV startups. 4. Long-Term Bets - H3 Fund managers often look at IPOs with a long-term lens. The goal isn’t always listing gains but building a position in a company expected to perform well over years. 5. Demand and Liquidity Trends - H3 In bullish markets, IPOs tend to be oversubscribed and see strong listing premiums. 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Here’s what you should look for when selecting such a fund: 1. Fund Category and Investment Mandate - H3 Start by checking the category of the fund. Flexi-cap, multi-cap, and mid-cap funds generally have more leeway to invest in IPOs. These funds are not restricted to a single market capitalisation and often aim to capture high-growth opportunities, making them ideal for IPO exposure. 2. Track Record of Participating in IPOs - H3 Review the fund’s portfolio history. Some mutual funds consistently allocate a portion of their assets to new listings. You can find this information in the fund’s monthly factsheet or portfolio disclosure. Look for funds that have a pattern of investing in IPOs over time—not just as a one-off move. 3. Fund Manager's Experience and Strategy - H3 A skilled fund manager makes a significant difference. The manager's ability to evaluate IPO valuations, industry potential, and company fundamentals is crucial. 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FAQ
What is a top-up SIP?
Top-up SIP is an option through which you can increase the amount of your SIP investment by a fixed percentage. This way, you can modify your investment in mutual funds in line with your increased income, savings, and revised financial goals.
What is the power of compounding?
Power of compounding is a principle which leads to higher return on investment by way of the reinvestment of periodical return on said investment. In simple terms, it means earning return on principal plus accrued interest or return.
What is meant by Rupee-cost averaging?
Rupee-cost averaging is a principle through which investors can benefit from the fluctuations in the Net Asset Values of their SIPs. When the NAV falls, a higher number of units gets allocated to the investor. Whereas when the NAV increases, a lower number of units gets allocated.