What Is SIP And How It Works

Imagine SIP as a turbocharged speedboat, propelling you towards your financial goals. A mutual fund SIP or Systematic Investment Plan is a familiar concept, often featured in catchy commercials on radio and television. But what is SIP, and how does it work exactly? Let’s break down the basics of the basics, method and working for this popular mutual fund investment mode.

As a beginner, you might have Googled these questions on SIP investments: 

1. What Is SIP Investment 
2. How SIP Works
3. How To Do SIP And How Many SIP Can I Open
4. How To Choose A SIP App To Invest In SIP 
5. If I Do SIP Then Which Taxation We Will Come Long Term Or Short Term
6. Can I Start Investing With 500 Rupees 
7. When Do Money Start Compounding In SIP
8. Can I Pay The SIP Amount After The Due date?
9. Is There Any Difference Between Monthly SIP And Yearly SIP 
10. Can You Give Example Of SWP And STP

Here’s finding answers to these questions and clearing your doubts on SIP investments:

One Of The Mutual Fund Investment Methods 

What is the full form of SIP? It is Systematic Investment Plan and it is one of the two primary ways to invest in mutual funds. The other method is lump sum, where you invest a large amount at once. To invest in SIP, is to invest a fixed amount regularly, often monthly, in a mutual fund scheme. This systematic approach helps you build wealth gradually over time. You can also choose to do a lump sum while you have an ongoing SIP. 

SIP Investments Working 

Imagine SIP as your personal financial autopilot. Set your course, choose your mutual fund scheme as destination, and let your SIP app guide you there. With a monthly investment as low as ₹500, you can start your mutual fund SIP plan.

To embark on your SIP journey, simply log in to a SIP app, complete your KYC (Know Your Customer) process, and authorise a bank mandate. Once you’re set, your investments will happen automatically, like a well-oiled machine. 

The best trading app in India facilitats SIPs by allowing investors to automate regular investments in mutual funds effortlessly. These apps provide user-friendly interfaces, tracking tools, and insights, making it easy to manage and monitor your SIP contributions.

SIPs And Financial Goals

You can start an SIP with any mutual fund scheme that suits your investment goals. There’s no limit to the number of SIPs you can have, so you can tailor them to your specific financial needs. For example, you could have one SIP for retirement, another for emergencies, and so on. Aligning your SIPs with your goals can help you achieve them efficiently. 

Choosing A SIP App

Picture this: managing your investments with the same ease as checking your social media. The world of mutual fund investment apps offers a smorgasbord of options, from sleek interfaces to powerful features. Consider factors like user experience, speed, popularity, and how quickly they address your concerns. Some apps even provide a panoramic view of your entire financial portfolio, including stocks, bonds, and more. Before choosing an app, dive into its features and read reviews to find the perfect match for your investing journey. 

You can open free Demat account to facilitate your SIP investments, allowing for seamless management of your mutual fund contributions. This account provides a secure platform to hold and track your SIPs without incurring additional costs.

Mutual Funds And Taxation

Your investment horizon in mutual funds can impact your tax on your profitability or gains. STCG (Short-Term Capital Gains Tax) and LTCG (Long-Term Capital Gains Tax) are the two main tax implications. The Union Budget 2024 introduced changes to these taxes starting July 2024. It’s essential to stay updated on the latest tax rules for your investment strategy. Additionally, Budget 2024 removed the indexation benefit from all financial and non-financial investments. 

Ideal Amount For SIP Investment 

You can start your mutual fund journey with a tiny step. Just ₹500 per month can be your starting point. There’s no limit to how much you can invest, so you can grow your SIP gradually. The beauty of mutual fund SIPs lies in their affordability, cost averaging, simplicity, and the power of compounded returns. Your small SIPs can snowball into significant returns over time, thanks to regular investing and diversification.

Do you need more flexibility? You can easily change your SIP amount or date anytime using your SIP app. It’s as simple as that!

SIP Investments And Compounding 

You can imagine your mutual fund SIP as a magical money snowball. As soon as you start investing, it begins to grow and gather momentum. The longer you keep it rolling, the bigger and faster it becomes. So, starting your SIP early and sticking with it for the long haul is like giving your financial snowball a head start, helping it grow to its full potential.

SIP Due Date And Payment In Form Of Lump Sum

Your SIP instalments are automatically deducted from your bank account on your chosen date. And, that’s why the bank mandate is given. But what happens if you don’t have enough funds or forget to set up your SIP on time? Your SIP would fail. 

But you don’t have to worry! You can simply invest your SIP amount as a lump sum in your chosen scheme to catch up and stay on track with your financial goals. 

Monthly SIP Vs Yearly SIP

Your SIP app puts you in control of your investments. Choose your preferred date, amount, and frequency for your SIP. While yearly SIPs can accumulate a larger amount upfront, monthly SIPs offer the benefits of cost averaging and compounding. Plus, monthly SIPs are easier to stick to due to their regularity and cost averaging advantages. That’s why monthly mutual fund SIPs are generally recommended for maximising your investment returns.

SIP, STP And SWP

Mutual funds offer more than just investing. You can also set up systematic plans for withdrawals and transfers. These are called Systematic Transfer Plans (STPs) and Systematic Withdrawal Plans (SWPs).

STPs let you systematically transfer your investments from one scheme to another within the same fund house. You can choose to transfer units or a specific amount.

SWPs help you withdraw your investments systematically. Just like STPs, they can be based on units or amount. This is handy for specific financial goals like retirement planning or paying off a home loan. With SWPs, a specific amount will be available to you on your selected date each month.

Hope this comprehensive guide has answered all your questions about mutual fund SIPs. If you’re ready, it’s time to start your investment journey!

Conclusion

SIP investments can be a game-changer for those looking to build a solid financial future. They offer a powerful shield against uncertainties like inflation, thanks to their compounding, cost averaging, and STP/SWP benefits. With SIP, you can set your investment cycle using the scheme, amount, date, and frequency, and then sit back and watch your money grow. Want to experience the magic of SIP firsthand? Try the HDFC SIP investment app. It offers a seamless experience and helps you learn the ropes. Check out the HDFC Sky platform for more information.