Comments
When you are saving for the long term, it pays to regularly set aside a certain sum at regular intervals for investments. But then, finding avenues to invest every month is a hassle and investing in new options every month or so would not only become more difficult to follow-up but also dilute your portfolio.
Mutual funds offer an easy solution to this through Systematic Investment Plans (SIP) which allow you to invest in equity or debt in a disciplined manner. As an extension of this service, investors can also withdraw systematically (Systematic Withdrawal Plan or SWP) or transfer from one fund to another regularly (through Systematic Transfer Plan or STP).
This week we look at the SIP way of investing.
What is an SIP?
A systematic investment plan is one in which an investor invests a fixed amount of money at a fixed, periodic interval.
What is the frequency of the investment?
There are daily, weekly, fortnightly, monthly and quarterly options available.
How much money can an investor invest?
Some fund houses accept the first cheque amount as the SIP to be made in future, while some others would want a minimum amount to be invested as stipulated by the scheme. Some, for instance, accept Rs 250 per month as the minimum instalment. A daily SIP may have lower instalment amounts.
In which scheme can an investor invest?
SIPs cannot be done in close-end schemes. The investor can invest in any open-ended scheme.
What is the process to invest in an SIP?
Usually, the investor needs to open a folio with the fund house by filling in a form; or he can invest in an existing folio.
How does an investor invest?
The investor can invest in 3 different ways — one is by giving post-dated cheques. The second is by giving a debit mandate by Electronic Clearing Service (ECS), where the money would be debited at the intervals specified, from you and automatically invested in units.
The third option is to give a standing instruction to a bank, which has such an arrangement with the Asset Management Company (AMC). Among these options, the ECS method is popular, as it is not only hassle-free but also specifically requires a tie-up with the bank and AMC.
How long does it take for the registration of the SIP?
It usually takes approximately 21 days from the time of the SIP instruction, for the first SIP to take effect; as the instruction is first vetted by the bank, and then registered. In case of a post-dated cheque, the registration takes place instantly, as it is done by the registrar and transfer agent.
What happens if the cheque is returned?
The units will be reversed; and intimation will be sent to the investors. If there are three consecutive returns of cheque, then as per the regulations, the SIP will cease to be active.
Can the investor stop the SIP?
The investor can stop the SIP by giving a notice of 21 days.
What is the advantage of the SIP?
SIPs help investors to save small amounts regularly and also help them to average the cost of acquiring the units.
Can the units be held in demat form?
Yes, the units can be held in demat and some fund houses allow SIPs on the Mutual Fund Service System (MFSS) platform.
Comments
COMMENT NOW
Comments
Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.
We have migrated to a new commenting platform. If you are already a registered user of TheHindu Businessline and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.