What Is SIP And How It Works

SIP, zap, zoom, and you are on your speedboat to your financial goals. A mutual fund SIP or Systematic Investment Plan is not an alien term to laymen, as it is one of the famous advertisement commercials you might see on television. But what is SIP and how does it work? Let us delve into the basics and nitty gritty of the famous mutual fund investing medium. 

Do you want to get to the core of SIP investment? Here is an understanding SIP investments with the help of ten popular questions: 

1. What Is SIP Investment 

Starting from what is the full form of SIP, which is a Systematic Investment Plan, it is one of the two main modes of investing in mutual funds. SIP and lump sum are The two methods of investing in mutual funds. While SIP is used for periodic regular investments in mutual funds, the lump sum approach is for one-time investment in the investment product. So, when you invest in SIP, you invest in a mutual fund scheme in a systematic, regular and periodic manner.

2. How SIP Works

You can choose a SIP app and set an amount, date, fund, scheme and frequency for your investments. With a monthly investment as low as ₹500 per month, you can get going with your mutual fund SIP plan. 

To start your SIP investments you just have to login into a SIP app, do your KYC, fill your bank mandate, and you are all set to go once after your mandate approval.

The best trading app in India facilitats SIPs by allowing investors to automate regular investments in mutual funds effortlessly. These apps provide user-friendly interfaces, tracking tools, and insights, making it easy to manage and monitor your SIP contributions.

3. How To Do SIP And How Many SIP Can I Open

You can start an SIP with any mutual fund scheme of your choice. Currently, there is no limit to the number of SIPs you can have. However, it can be beneficial to align your SIPs with your financial goals. For example, one mutual fund SIP for your retirement, another for emergencies and so on. Planning goal based investments through SIPs can help you efficiently reach your financial goals. 

You can open free Demat account to facilitate your SIP investments, allowing for seamless management of your mutual fund contributions. This account provides a secure platform to hold and track your SIPs without incurring additional costs.

4. How To Choose A SIP App To Invest In SIP 

There are several mutual fund investment apps available in the market. You can choose one of them on the basis of seamless experience, user experience (UX), speed, popularity and quickness in grievance redressal. There are even comprehensive apps available that can help you combine your mutual fund portfolio with your overall portfolio of stocks, bonds and more. You can check the features and ratings of various SIP Apps before making a decision. 

5. If I Do SIP Then Which Taxation We Will Come Long Term Or Short Term

Based on your investment horizon in mutual funds, you might incur various STCG and LTCG taxes. STCG stands for Short Term Capital Gains Tax and LTCG refers to Long Term Capital Gains Tax. The Union Budget 2024 has detailed the changes in these taxes starting July 2024. You need to check the recent tax implications in the ongoing tax regime for the same. Also, Budget 2024 has removed the indexation benefit from all the financial and non-financial investments. 

6. Can I Start Investing With 500 Rupees 

Yes, you can start your mutual fund investments with an amount as small as ₹500 per month. There is no upper limit for setting a monthly SIP. The main advantage of mutual fund SIPs is the cost-effectiveness, cost averaging, ease of investing and compounded returns. Your small SIPs can snowball into higher potential compounded returns with regular investing and diversification in mutual funds. 

Also, you can also change your SIP amount and SIP date anytime in an SIP App without any hassle. 

7. When Do Money Start Compounding In SIP

Your money in mutual fund SIP starts compounding as soon as you invest in a single SIP. Compounding is a process wherein you get returns over returns. It is a snowballing effect that occurs on your invested amount over a long period. In fact, the longer the investment period, the higher would be the effect of compounding or the compounded returns. So, it can be beneficial to start your SIP investments early and stay invested for a longer period for the magic of compounding to work well. 

8. Can I Pay The SIP Amount After The Due date?

The SIP instalment is automatically deducted from your bank account on your SIP date. However, there can be times when you have failed to maintain adequate cash for your SIP investment or you have been unable to set your SIP on time. So, in order to fulfil the investment deficit that would have occurred, you can invest your SIP amount separately in your chosen SIP scheme as a lump sum. This would ensure that you are on-track with your financial goals. 

9. Is There Any Difference Between Monthly SIP And Yearly SIP 

You can use your SIP App to set up a SIP at your preferred date, for a preferred amount at a preferred frequency. The difference between monthly SIP and yearly SIP can be the amount accumulated, the cost averaging and the compounding advantage. Moreover, an yearly SIP might be difficult to maintain because of the absence of regularity and cost averaging factor. Therefore, a monthly mutual fund SIP is usually recommended for getting the most out of your SIP investments.

10. Can You Give Example Of SWP And STP

Apart from investing, mutual funds offer systematic plans for withdrawal and transfers. These are called Systematic Transfer Plans or STPs and Systematic Withdrawal Plans or SWPs. 

By setting-up a STP, you can systematically transfer your investments from one scheme of the same fund house to another. You can set the STP in terms of both units and amount. 

Similarly, the SWP helps you withdraw your investments in a systematic manner. Just like STPs they too can be in the form of units and amount. This can be useful for specific financial goals such as retirement planning or paying an EMI for a purchased house. Here, a specific amount would be available at your disposal on your selected date every month. 

Hope all your doubts on mutual fund SIPs have been answered and cleared with these exhaustive list of questions. If ready, you can start your mutual fund SIP investments now.

Conclusion

SIP investments can be a boon to those looking for a regular, systematic and goal-based financial planning. They can give your portfolio an edge over uncertainties like inflation with their compounding, cost averaging and STP, SWP benefits. With SIP, you can set up your investment cycle using the scheme, amount, date and frequency and relax as your money works for you. Look at the seamless app experience and learning bank provided by HDFC SIP investment app. Check the HDFC Sky platform for more. 

2 sip what is the full form of sip 1
2 sip investment how sip works 1
2 invest in SIP what is sip and how does it work 1
2 mutual Fund sip meaning of sip in ratio analysis 0
2 sip investments example of swp 1
2 SIP app how to do sip 1
1 hdfc sip investment app how many sip can i open? 1
if i do sip then which taxation we will come long term or short term 1
is sip treated as long term or short term 0
can i pay the sip amount after the due date? 1
is there any difference between monthly sip and yearly sip 1
sip profit can be paid as tax or not 0
can i start investing with 500 rupees 1
when do money start compounding in sip 1

Latest articles