SIP - Systematic Investment Plan

Similar to Recurring investment or Periodic investment, systematic investment plan (SIP) automatically deducts certain amount from your bank account and invests it in mutual fund of your choice. You receive specific number of units in mutual fund scheme where you have invested once money is deposited. Net Asset Value (NAV) of that specific scheme on that specific day determines how many units you have invested. With each instalment, SIP mutual funds give you more units in scheme. For Regular savings plan you would require Investment scheduling which could lead to Fixed investment plan. 

Depending on how frequently you invest, you can choose from variety of Mutual funds SIP options:

A. Top-Up SIP: It allow you to gradually raise investment. Consequently, you might raise payment to reflect your income. 

Example, if you choose Step-Up SIP & decide to increase your contribution by ₹ 2,000 annually, by end of 20 years, your corpus will be ₹ 3.17 crores with investments totaling ₹ 93.6 lakhs. slight increase in contribution yielded additional corpus of ₹ 1.17 crores through Step-Up SIP. 

B. Unending SIP: These investments are usually made for set time frame of one, three, or five years. Perpetual SIP, however, is not need to have end date. As name implies, it keeps going until you give asset management business order to cease investing. 

C. Flexible SIP: You can change amount you contribute to flexible SIP. You can halt your installments till further notice with it. In times of financial hardship, it is extremely helpful. If you have extra money in your bank account, it also boosts your contribution. 

D. Trigger SIP: Investors with solid stock market understanding might consider trigger SIP. They give you option to designate start, switch, or redemption date for your investment in response to predefined event. 

Only investors who are aware of market's highs & lows should use trigger SIPs. They are undesirable because they promote conjecture. 
 

There are several SIP investment options available from different fund institutions. To select Systematic Investment Plan, you need to assess parameters listed below:

i. SIP Duration: When choosing SIP, investment tenor is essential. Prior to making investment, you should think about required rate of return, tax benefits, risk involved, & investment purpose. For significant profits, investment period of five years or longer is ideal. For liquid finances, this investment is not recommended. It works well with equity & tax savings plans. 

ii. Asset Management Company: fund firm that looks after your investments is referred to as asset management company, or AMC. Prior to investing, it is important to confirm AMC's or insurance company's reputation. Examine operating years, historical results, & fund managers in addition. These metrics give information on fund's resiliency & handling

iii. Financial Objectives & Risk Tolerance: These factors should be taken into account while selecting SIP. For instance, benefits are best served by equity-linked savings plan, while long-term investors should participate in equity plans. plan must therefore align with your financial objectives. 

iv. Size of Assets: assets that AMC is in charge of managing should also be taken into account. Rs. 500 crores is suitable benchmark for asset size. Funds having AMC of less than 500 crores, however, are acceptable. Fund performance, though, could not be as strong.

Even though Systematic Investment Plans are typically profitable ventures, lot of individuals make mistakes that can lower total investment returns. Here are six typical mistakes people make when making SIP investments.

1. Fund Selection: first step in investing is selecting fund & mutual fund house. SIP investments are provided by number of financial institutions & insurance providers. It is up to you to select fund that meets your investing requirements. You need to be aware of your projected returns, investment goal, & risk tolerance before making any investments. It is advantageous to evaluate different plans & carry out in-depth study before selecting fund. 

2.High Investment Amount: This kind of investing entails regular & sporadic purchases of ULIP plans & mutual funds. As result, amount of your initial investment needs to be such that you can keep making more investments. 

3. Short-Term Investment: There is direct proportionality between investment time & value. Consequently, return on investment increases with length of investment period. advantages of compounding & rupee cost averaging are not available with short-term investment horizon. 

4. Lump Sum Investment: You can add lump sum investments to your SIP account through some mutual fund programs. In event of cash surplus, it is advantageous to add lump sum amount. Higher returns are probably possible when regular SIP investments are combined with lump sum investments. 

5. Suitability: most widespread misunderstanding regarding SIPs is that small investors can only use them because they lack funds to make lump sum investment. On other hand, maximum investment is not restricted. best sip investment plan is whatever suits you goal.

6. Dividend vs. Growth: When investing in mutual funds, investors frequently select dividend over growth option. growth option does not pay out any returns on investment until it matures, but dividend option distributes profits on regular basis.