How to choose the best SIP plans?

How does an SIP work?

Mutual Fund investment has become accessible to all types of investors due to its flexibility and variety of schemes. Systematic Investment Plan (SIP) is one of the popular investment plans among mutual fund investments. Through the SIP scheme of a mutual fund, an investor invests a fixed amount in fixed intervals. Mutual funds create a common portfolio with an amalgamation of equity, stocks, bonds, securities of different types as per the present market condition. Then it divides the investment value among the investors into different terms as per the financial capabilities of investors. SIP is like the recurring deposits in public and private banks. But the difference is that you count a fixed annual interest rate (generally 5-8%) when you invest in banks’ recurring schemes. In SIP, your return might be much higher than the banks’ recurring scheme as per the market condition. There is a risk factor too in SIP, but the skilled professionals engaged in mutual funds try to get the best return from the market. 

When you invest online in SIP of a mutual fund, a fixed amount is deducted from your bank account after a fixed interval. Then you are provided with the units according to the Net Asset Value (NAV) of the mutual fund. NAV is the total asset subtracting the total liabilities of a mutual fund; it is divided among all the investors in that fund. You get additional units after every instalment paid. After a fixed tenure, you can encash your investments. You can also withdraw a portion after the lockin period.  Unlike recurring deposits or fixed return plans of insurance companies, mutual fund investments bring you opportunities for more returns with a minimum risk factor. The reason behind this is that it is an almost commission-less investment, and you can manage everything online virtually. 

Best SIP Plans

Which are the best SIP plans in the market? This question is a common one among investors nowadays. But the answer is not simple. Determining the best SIP plans depends on the nature of the investment, your financial capability, and your investment goal. A focus on the classification of the SIP will help you to choose the best Systematic Investment Plan (SIP) for you. 

Flexi SIP & Top-up SIP: Flexible SIP plan or Flexi SIP offers you the opportunity to invest as per your financial capability from time to time. Unlike most other SIPs, you are not liable to invest a fixed amount, rather you can increase and decrease it. On the other hand, top-up SIP offers you the chance to add an extra amount to the existing amount of your SIP instalment. This helps you to reach your goal faster with the progression of your income. 

Perpetual SIP & Trigger SIP: In perpetual SIP, you don’t have to follow a mandatory lock-in period, you can close and withdraw your money anytime. Trigger SIP gives you the option to switch your investment plan according to the market condition. 

Advantages of SIP

SIP provides you with the following advantages which are missing in a fixed or recurring deposit in a bank or other financial organizations:

  • You can invest in top companies with a minimum amount like Rs 500 per month through an SIP. 
  • The return rate of SIP is much higher. 
  • You get the option to increase/decrease the value of your investments in SIP.
  • You can withdraw your money after a lockin period or anytime based on your plan. 
  • SIP under the ELSS scheme provides you tax benefit U/S 80C.
  • SIPs are managed by skilled professionals. You have the chance to get the best return. 
  • SIP plans are flexible and customized according to your need, financial condition, and financial goal. 
  • SIPs are offered by mutual funds registered under SEBI. 
  • Your investment in SIP is almost commissionless and paperless. You can invest yourself online. 
  • SIPs grow your wealth and make you a disciplined investor. 

If you can invest wisely in SIPs of mutual funds, you can grow your wealth faster. However, mutual fund investments are subject to market risk. You need to go through all the terms and conditions before any investment. You may consult an AMFI registered mutual fund distributor to know more.