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How To Invest In SIP Online

Keen to learn how to invest in SIPs? Here’s a comprehensive guide to investing in SIPs in India. Click here now to know more.

A SIP, or a systematic investment plan is an investment instrument in which your capital is invested in a plan over intervals for a period. These intervals may be monthly, quarterly, etc, ensuring that you make payments to your plan in a disciplined way with some regularity. It is important to note that via a SIP, your wealth grows over time with returns reinvested, in a compounded fashion.

Simply put, whether you opt for online SIP investment, or any other way, a SIP invests your wealth in mutual funds (related market/debt assets). SIPs are time-tested ways of investing, minimising risks and subsequent losses. They also permit mutual fund investors to buy mutual funds at lower than regular costs, as rather than allocate lump sums for investment, investors can invest in instalments.

Types of SIP Mutual Funds 

There are four primary kinds of SIPs:

  1. A Top-Up SIP - As the value of your portfolio increases, this SIP permits you to raise your investment.
  2. A Flexible SIP - A flexi-SIP allows you to increase or decrease investments on demand, with a provision that the last purchases made were less than two months prior.
  3. A Perpetual SIP - As the name suggests, these SIPs do not come with a conclusion or any end date.
  4. A Trigger SIP - This kind of SIP is ideal for those investors with a limited amount of knowledge of financial markets. You may set the NAV, SIP start date, index level, etc, with such a SIP. This is a SIP that invests in a mutual fund which encourages some speculation on the investor’s part. Hence, it may not have many takers. 

Advantages of SIP Mutual Funds 

A SIP facilitates the start of your investment with a small amount of capital. In the long run, you can reap rich rewards. The investment channel through a SIP is quite simple, besides being a very convenient method of investment in mutual funds. A SIP comes with the financial discipline you need to save and build your wealth. Here are the key advantages of an online SIP investment, or any SIP method of signing up you choose: 

  • Compounding Power - You can unleash the potential of compounding on your investment in a SIP over a lengthy span of time. The concept of rupee-cost averaging ensures that you receive good returns compared to lump-sum investments.
  • Rupee-Cost Averaging - With a SIP in your pocket, it is not necessary to time the market. You can buy more units if markets are low. What this does is reduce your investment cost overall.
  • Great Convenience - Investing in a SIP works through a phased manner and a disciplined fashion. An online SIP investment gives investors the convenience of beginning an investment with low sums of merely Rs.100 each month.
  • More Returns - When you compare a SIP to a conventional fixed deposit/recurring deposit, you will discover that a SIP offers more returns. This is great to beat the rising costs and expenses in your life, and combat inflation in an effective way. 
  • Emergency Funding - With any SIP of your choice, you may opt for an open-ended fund devoid of a tenure. This means you are able to withdraw your capital to meet emergency costs. 

Disadvantages of SIP Mutual Funds

Although you may find many advantages of an online SIP investment, there are certain drawbacks too. These are listed below:

  • Returns are Averaged - With a SIP, an investor’s cost is averaged out. Since this is the case, your returns may be less than if you invest a lump sum in a market you think will rise in the future. 
  • Decreased Control -  A SIP may seem rigid in a way. You should note that you invest a predetermined amount  (depending on your plan) in an online SIP investment mutual fund of a fixed nature. If you wish to alter the amount/scheme, you must stop the initial SIP, then begin a fresh SIP.
  • The Calculation of Returns is Cumbersome - In a SIP, as mutual funds are linked to markets, you may be investing your capital at different prices. Hence, your returns may differ. Calculating these amounts on a monthly basis may be a tedious task, and comparing SIP returns to returns from other investments may be even more cumbersome. 
  • Unsuitable for Unpredictable Incomes - SIPs require that you invest fixed amounts of capital at certain times. If you are a self-employed person, earning an income that may be unpredictable, it may be a challenge to commit a fixed amount of money to a SIP. 

How SIP Mutual Funds Work

Through the online SIP investment route, you are able to invest in any type of mutual fund. This helps you to create wealth in the long run, over a period. How does an online SIP investment work? A SIP is a way to invest a fixed amount of capital, regularly, in a mutual fund. A SIP enables you to buy investment units on any given date of each month, so you can save and possibly grow wealth. 

Say you invest a specific amount in a SIP on a monthly basis, and opt for an automated deduction from your bank account on the 10th of each month. A fixed sum will be automatically debited from your bank account on the set date and invested in the mutual fund of your choice.

How to Invest in SIP Mutual Funds 

Whether you choose an online SIP investment, or offline method, here are some steps of how to go about investing:

  1. Decide on your appetite for risk and your financial goals.
  2. Choose a mutual fund according to your tolerance for risk and your financial objectives/purpose.
  3. Select your SIP. You will have to choose the investment intervals and dates on this basis.
  4. Decide on your SIP duration.
  5. Invest in a SIP online or offline. 
  6. You can invest through your bank or a financial investment company/broker. 

When are SIP Returns Paid to Investors?

When you make an online SIP investment, it’s good to know when you can expect returns from your SIP and when returns are paid back. A SIP that is held for the long haul gains more returns in the future than short-run plans. Moreover, if you choose to redeem your mutual fund amount, it takes 1 to 3 working days to see the capital in your bank account. For liquid funds, it takes a day, for debt, two days, and for equity funds, three days. In the case of ELSS funds, you cannot redeem your investment before 3 years, as a lock-in term applies. You may also want to check the exit loads while you plan to redeem funds. 

Tax Implications of SIP 

When you make an online SIP investment, you may get certain perks, but the tax implications are the same whatever way you apply. For a SIP in an equity fund, if held for below a year, a short-term capital gains tax is applied at 15%. However, if the same is held for more than a year, a long-term capital gains tax is applicable at 10% for an amount of more than Rs.1 lakh. Furthermore, you are eligible to  claim a tax deduction of up to Rs.1.5 lakh if you have invested in ELSS funds through a SIP, within Section 80(C) of The Income Tax Act, 1961.

FAQs

Are SIPs worth it?

SIPs are good for small investors who wish to invest small amounts and gradually grow wealth.

Are SIPs more secure investments than direct equity?

SIPs are more secure than investment in direct equity as mutual funds through SIPs let you have a balanced investment,  mitigating risk.

Which SIP is tax free under 80C?

Section 80C permits a deduction upto Rs.  1.5 lakh for ELSS fund investment. 

Can I invest directly in a SIP?

You must select a mutual fund for investment through a SIP. You can also choose to invest between direct plans (with an asset management company), or  regular plans (via a mutual fund distributor).

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