What is SIP?

You do not need a considerable sum to invest in mutual funds. You can start investing by setting aside a small sum on a monthly basis. Mutual funds operate on this popular mode of investment called Systematic Investment Plan (SIP).

In SIP, you instruct your bank to deduct a fixed amount from your savings bank account and it gets automatically invested in the mutual fund of your choice. SIPs start from as low as Rs 500 per month and can be stepped-up eventually as the investor’s income increases. It, thus, inculcates a habit of disciplined saving and investing.

Additionally, it will help you to achieve your life goals like buying a home, saving for your children’s higher education or for your retirement planning.

While opting for an SIP mode, you can choose the frequency of the SIP to be monthly, quarterly or on an annual basis. It is recommended to go for a monthly SIP which helps generate a more significant amount of wealth via the high returns and cost averaging. 

Fund flows into SIP schemes:

In spite of volatility in the stock markets, retail investors continued to repose their faith in the systematic investment plans (SIP) of equity mutual funds. However, various debt mutual fund categories like liquid funds and credit risk funds witnessed outflows in September 2019. Fund inflows into equity schemes through SIPs touched Rs 8,263 crore in September’19 compared to Rs 8,230 crore in August. This is the tenth consecutive month when monthly SIP collections have stayed above Rs 8,000 crore mark. 

Why SIP is a dependable investment tool:

• Helps in inculcating financial discipline.
• Helps you put investments on your priority list.
• Average out your cost of investment and hence reduce your risk.  Let’s say you invested Rs 1000 every month and let’s assume the scheme you invested in is available at a unit value of Rs 20 per unit. Then in month 1, you will be able to obtain 50 units. In month 2, if the unit value goes down to Rs 10 then you will be able to obtain 100 units. Hence for Rs 2000 invested over 2 months, the total value of your investment at the end of 2 months is Rs 1500. However, if you had invested a straight sum of Rs 2000 in month 1 when the unit value was Rs 20 per unit, your net value at the end of month 2 will be only Rs 1000. Hence SIP investment method helps you to average out your cost and thereby reduces risk.
• Helps in compounding your wealth, more so if start early in life.

What should be the approach while saving for long term?

For the long term goal, the real value of the cash outflow needs to be estimated and to that an expected inflation rate added, to get the nominal cash outflow required to meet the expected long term goal.

Once this is set, say Rs 25 lakh required after 20 years to meet daughter’s marriage expense, then one needs to map out own risk profile. Then a strategic asset allocation needs to be set in place which would match the risk preferences and at the same time generate a return sufficient to meet the nominal expected requirement.

Here are some mutual fund schemes recommended by some financial publications, that you can choose from based on your risk profile.

Recommended fund schemes for conservative/moderate investors for SIP investment:

1. Axis Bluechip Fund – G
2. ICICI Prudential Regular Savings – G
3. Aditya Birla Sun Life Regular Savings Fund – G
4. ICICI Prudential Bluechip Fund – G-
5. Motilal Oswal Multicap 35 Fund – G

Recommended fund schemes for aggressive investors for SIP investment:

1. SBI Magnum Multicap – G
2. ICICI Prudential Bluechip Fund – G
3. Motilal Oswal Multicap 35 Fund – G
4. Axis Bluechip Fund- G
5. Mirae Asset Emerging Bluechip Fund- Regular Plan -G
6. ICICI Prudential Equity and Debt Fund – G
7. TATA Equity PE Fund – G