Finance

How SIP works effectively in mutual funds

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Introduction

It is never too late to start investing. The option of mutual funds in India offers so many tools of investment that are easily understandable and do not require a big initial investment. With SIPs or Systematic Investment Plans, you can a particular amount monthly or at regular intervals and can earn returns at the time of mutual fund redemption. Well, the power of compounding works in this situation and the investors get benefited over the period of time.

Let’s understand how SIP works in mutual funds in detail-

SIP or the systematic investment plan is a form of mutual fund investment wherein you invest a predetermined fixed amount at specific intervals. In this scheme, the investor has to buy units on a particular date every month so that he can plan out their savings. The investor need not worry about the market timings with respect to investment while considering a SIP, which is one of the main features of SIP investment. If the investor times the market, he can miss out when markets were at their high. In addition to that, there are chances that he can enter the market at the wrong time as well.

In the case of SIPs, the investor should not worry about the timing, rather he should be investing the amount every month irrespective of the condition of the market. It is obviously impossible to predict the market condition at the time of mutual fund redemption, so it is better to invest regularly as it shows how much the person is invested.

In order to invest in SIPs, the investor needs to fill an application form in which he needs to display the SIP date on which he wishes to invest the amount. The forthcoming investments can be auto debited or can be submitted through post dated cheques as well. The physical form of amount submission can take place at the office of the mutual fund or investor service centre, or at the centre of the registrar and transfer agent.

If you wish to stop investing in Systematic Investment Plans, you can do so at any time. Once you stop paying the amount, you can either redeem the investment or opt to remain invested for the same. Depending upon the type of your mutual fund SIP, you will face the situation of lock in period which means, you cannot redeem the amount before the specified time. If you do so, you will not be subjected to additional benefits. While investing in a SIP, it is better to determine the numbers beforehand so that you know what you will be getting in return. You can do so by using a SIP calculator.

Conclusion

SIPs are very much safe and considered a great investment tool by investors across the country. It offers several features such as tax exemption up to Rs. 1.5 lakhs, no questions asked if you want to stop in the middle, etc. Even if you are thinking of a long term investment, SIPs are great as you can start with small regular investments.

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