Quite often we have seen that when it comes to investing, many people have the misconception that it is only for the rich who can afford to spend large amounts of money. In addition to the structured savings regimen based on your income, your financial plan should also include a facet for making investments. Through a plethora of options available to make investments, the world of finance has become much more accessible over time. A systematic investment plan (SIP) is one such method that you can take advantage of, especially if you are beginning your journey as an investor.

• What are SIPs?

A Systematic Investment Plan (SIP) is an option offered by many mutual funds to investors, which allows you to contribute a particular amount regularly. If you choose to use this method, the contribution will be automatically deducted from your bank account. 

• Are there any conditions for SIP?
• • Many SIP mutual funds come with a perpetual contribution option, in which the sum is deducted till you opt-out from the plan. 
  • The interval at which you make payments is also pre-defined by you. Many people choose to make contributions weekly, monthly or quarterly. 
  • We would advise you to link your SIP to a particular goal, and make contributions till it is achieved. You can start a new plan if required after that. 

• Can you make changes to the amount in SIP?

You are permitted to increase or decrease the amount you contribute towards SIP, without any penalties. The SIP set up process can take up to a month to finalize. You may initiate a change in your SIP by cancelling your present mandate and asking for a revision. Fund houses do not charge a penalty for stopping services (and restarting if desired), as long as all the mandated payments have been made. 

• Who should consider SIP?
  • SIP is the perfect option for someone who is investing for the first time. 
  • The best practice would be to start a SIP irrespective of market volatility. 
  • One can earn a large pay-off in the long run if he/she plans to start a SIP with their first job.
  • Beginning to invest sooner rather than later allows you to make use of the power of compounding.
  • Subsequently, in the long run, fluctuations in the rupee will also average out, allowing for more consistent returns. This is known as rupee cost averaging. 

• Other benefits of SIP

Apart from achieving personal goals, funds accumulated through SIP contributions can be used for emergency purposes. In the case of any medical emergency, you can withdraw the funds in your SIP to make any payments, if required. This can help you keep your savings and other finances intact, and put your mind at ease during the stressful period of an emergency. 

Systematic Investment Plans are a game changer in the world of finance. Making contributions in a SIP from the early stage of your career will help to achieve your goals. By consulting a certified financial planner or wealth management firm you can efficiently identify the right SIP for your portfolio and its associated risk profile.