Systematic Investment Plans

by March 29, 2017

It is common knowledge that investing in equity or stock markets gives the highest returns. However, the risk is also as high. You need to have knowledge of the markets, and be constantly updated to ensure that you pick the right stocks that can make money for you. Most of us are professionals working in various sectors and may not necessarily have the knowledge and time to constantly update ourselves about the financial markets. Nonetheless, such investments in the stock markets are essential to ensure that you reach your financial goals.

For everyone who wants to attain these goals while safely mitigating the downside of the stock markets, Systematic Investment Plans (SIPs) is an ideal option. SIPs allow you to invest a fixed amount (that you are comfortable with investing per month) in a mutual fund or a specific stock at regular intervals.

I would like to list a few reasons as to why SIPs are a smarter way to achieve your financial goals:

1. It’s easy and safe: To start an SIP, all you need to have is a demat account and an internet connection. A demat account enables you to invest in stock markets through a website or mobile app. You can select a mutual fund/ or a stock which you are bullish about and start an SIP in a few clicks. As it goes through the formal banking channel, you get a contract note and statements and your units in the mutual fund, or your shares are safely held in a depository accounts.


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2. Standing instructions using ECS: If you invest in an SIP, you mostly invest once a month on a specified date. If the date is the 10th of a month, you could give a standing instruction to your bank to ensure that you needn’t track the dates on which you must transfer money for SIP. The bank can do an auto-debit from your account and it ensures that your SIP investments keep happening automatically.

3. You can start small: The biggest concern (or misconception) is that you need a lot of money to start investing in equity or stock markets. With the SIP option, you can start small by investing Rs. 1000 in a mutual fund to begin with. Hence, an entire year of investing in a mutual fund through the SIP route would mean that you have to set aside only Rs. 12,000. That’s easily manageable for most working professionals today.


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4. It helps to mitigate the highs and lows of the market: When you invest in a mutual fund through an SIP, the number of units that get credited to you depends on the market on that date. For example: If the market and the prices of shares is low, you will receive more units of a mutual fund. Similarly, you can also get more units of a share. At the same time, if the market and the price of stocks is high, the number of units you receive for the same amount of money is lower. However, over a longer period, say a year or two, SIPs can tackle the volatile nature of the market better and ensures that you get a good number of units of a stock or a mutual fund.


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5. It helps you to build a good corpus: SIPs are a good way for you to build a long-term corpus. If you start young and invest through the SIP route, your money will grow at a compounded rate and build you a good corpus when you grow old.

6. Tax benefits enable you to get more return on the investment: Over and above the returns that the disciplined SIP investments provide in the long term, it also entitles you to tax benefits. If you invest in equity linked saving schemes (ELSS), which often come with a locking period of three years, you can save on taxes to the extent of your investment, under 80C. The maximum savings allowed under this section is 1.5 Lakhs.


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The benefits of SIP investing are obvious. I recommend the mutual fund route, especially if you do not know much about the markets. A mutual fund, especially ones investing in equity, have fund managers who are experts with astute understanding of the markets. They will invest your money in the right stocks to ensure that the fund grows well. You are an indirect beneficiary of their expertise and knowledge and can get good returns on your investment over a period.

So, start an SIP today and embark on a smart journey towards attaining your long term financial goals.