Systematic Investment Plans (SIP)

SIP is a mutual fund facility through which you can invest from your regular savings in a mutual fund scheme of your choice. The investment amount is debited from your bank account every month and it is used to purchase units of your chosen mutual funds scheme at applicable Net Asset Values (NAVs).

You have to provide a ONE TIME MANDATE (OTM) for NACH Debit to the fund house. This mandate needs to be submitted only once. The OTM will be sent to your bank for authorization. Once the bank authorizes, the SIP amount will be debited automatically from your bank account at intervals specified by you (e.g. monthly, quarterly etc) in the OTM and invested in the scheme or schemes selected by you.

How will it work? Suppose you are investing Rs 10,000 through a monthly SIP on the 1st of every month. On 1st of the month, suppose the scheme NAV is Rs 100; (Rs 10,000 ÷ Rs 100) = 100 units will be allotted to you. On the 1st of next month, suppose the scheme NAV is Rs 102; (Rs 10,000 ÷ Rs 102) = 98.04 units will be allotted to you and your unit balance will be, 100 + 98.04 = 198.04. On the 1st of next month, suppose the scheme NAV is Rs 99; (Rs 10,000 ÷ Rs 99) = 101.01 units will be allotted to you and your unit balance will be, 100 + 98.04 + 101.01 = 299.05. You will keep accumulating units of your mutual fund scheme as long as you continue your SIP.

You can redeem units in your SIP account at any time at applicable NAVs by sending a redemption request to the fund house or the Asset Management Company. For schemes with lock-in periods, redemptions are not allowed within the lock-in period. SIPs provide both flexibility and convenience, suitable for both experienced and new investors.

• You do not need to accumulate a substantial corpus if you are investing through SIP. Through SIP you can start investing small amounts from your regular savings in mutual funds.
• Since you start your SIP with relatively small amounts from your regular savings, you start your investment journey from a younger age and invest for long investment tenures. The longer your investment tenure, higher is the potential wealth creation due to the power of compounding.
• SIPs keep you disciplined in your investments. You do not have to worry about market levels and timing the market. Through SIPs you will be investing at all price (NAV) levels – this is known as Rupee Cost Averaging.
• Disciplined investing will help you overcome behavioural biases e.g. greed, fear etc, which can harm your long term financial interests.
• SIP helps you take advantage of market volatility by lowering your average cost of acquisition. In a deep market correction, you can accumulate more units since the NAVs are relatively low – this may result in reasonably higher wealth creation.

SIPs are highly flexible investment options. You can select ‘specific dates every month or quarter’(as per the provisions of Scheme Information Document) for SIP auto-debit. There are multiple options of intervals or frequency from which to select based on your needs:-

• Daily SIP – SIP amount will be debited from your bank account on a daily basis (on all business days)
• Monthly SIP - SIP amount will be debited from your bank account on a monthly basis.
• Quarterly SIP - SIP amount will be debited from your bank account on a quarterly basis. Furthermore, you can opt for a Regular SIP or Top-up SIP:-
• Regular SIP – In a regular SIP, a fixed amount specified by you in the OTM will be debited from your bank account and invested in your selected scheme for the entirety of the SIP’s tenure
• Top-up SIP - SIP Top-up is a facility using which you can increase your SIP instalments either by a fixed amount or a certain percentage at regular intervals - half yearly and annual etc. over the tenure of the SIP. There may be change in the terms and conditions for SIP TOP-UP facility from time to time, due to changing market and operational conditions.

The minimum investment amount can be different in different asset management companies. It can be as low as Rs 100 per day.

If you do not have sufficient balance in your bank account on the SIP date, your SIP transaction will fail. Do not worry if you have missed your SIP instalment. One missed instalment will not make much of a difference in the long term. Ensure that you have sufficient balance in your bank account on SIP dates in the future. If there is sufficient balance in your bank account, your next SIP transactions will go through and you will be allotted units. Please note that the mutual fund company will not charge any penalty for missed instalments, but your bank may charge you a penalty for insufficient funds and missed auto-debit payment. If you miss your SIP instalments for 3 consecutive months, the mutual fund company will cancel your SIP.

The power of compounding is based on the concept of compound interest. In compound interest, you get interest on interest. For example, if you have invested Rs 1,000 and interest is 5%, then you will get Rs 50 as interest. This interest is re-invested and next year, you will get interest on Rs 1,050 i.e. interest of Rs 52.5. The interest earned by keeps increasing every year throughout your investment tenure.

SIP does not assure a profit or guarantee protection against loss in a declining market. There may be change in the terms and conditions for SIP from time to time, due to changing market and operational conditions. Please note the illustration above is purely for investor education purposes and should not be taken as financial or investment planning recommendations.

In mutual funds, you earn returns through dividends (Income Distribution Cum Capital Withdrawal - IDCW) and capital gains on your investments. When these profits are reinvested, the compounding effect—earning profit on your profits—magnifies your returns over time. This is pivotal for both one-time and systematic investments, as it utilizes the principles of compounding to enhance the growth potential of your invested capital.