How to start a Systematic Investment Plan or SIP in Mutual Fund

There are two ways to invest in a mutual fund. One is the one-time outright payment directly to the mutual fund and the other one is periodic payments to a predefined mutual fund scheme. The First type of investment is called Lump Sum investment and the second one is called SIP or Systematic Investment Plan of a mutual fund.

In this article we will be discussing how to invest in a systematic investment plan or SIP of a mutual fund.

systematic investment plan sip

What is Systematic Investment Plan or SIP and How to start

Systematic Investment Plan or SIP is process where you invest a predefined amount periodically in a selected mutual fund scheme.

Through a systematic investment plan, an investor can make a disciplined approach towards investing in mutual fund schemes. To get started you can save a small amount every month and start investing in any of the SIP scheme of your choice to meet your exhaustive expenses like children’s marriage or education or buying a house.

To get started you are required to choose the mutual fund scheme, investment amount, time period up to which you want to continue your investment.

You can even start with a small amount of 500 rupees and then gradually increase to accumulate your wealth.

In a systematic investment plan (SIP), mutual funds have given flexibility of investing in different dates of the month. If you are working and have a surplus amount every month then you can invest in your preferred date and that date will be considered as transaction date. While applying for SIP you are required to choose this transaction date in advance.

While choosing your mutual fund for a SIP, you need to see if they ask for an exit and entry load. Exit load is a fee that you are required to pay at the time of selling your mutual funds and entry load is at the time of getting into the plan.

How to Pay for your SIP

You are required to identify the amount and scheme and then choose the option of payments like cheque or ECS.

If you opt for ECS mode then on the basis of your instruction, your mutual fund company will directly debit your bank account periodically for the predefined amount. But, in case of not having sufficient funds in your bank account, mutual fund companies will not allow any units for that month.

If ECS methods are not beneficial to you then you can issue post dated cheques and send it to your mutual fund company on a periodic basis.

Pros and Cons of Systematic Investment Plan or SIP

Like any other investment plan, SIP or systematic investment plan also has pros and cons. Go through these pros and cons before investing.

  • Systematic investment plan or SIP is a planned approach which increases your habit of saving and wealth creation periodically.
  • In a volatile market, your total investment will have more mutual fund units when the price is low and lesser units when the price is high.
  • SIP or systematic investment plan has flexibility of discontinuing at any time of your choice. One can also increase or decrease the amount of investment.
  • You can choose various method of periodic payment. Most of the mutual funds are allowing flexibility of accepting standing instruction for auto debiting your account on the specified date.
  • As you invest a fixed amount periodically, the average cost of SIP is reduced.
  • Minimum amount for a lump sum investment is 5000 rupees compare to SIP where you can even invest 500 rupees to 1000 rupees periodically.
  • You are not allowed to invest in all type of mutual funds through SIP.

If you do not want to continue with SIP then just inform the mutual fund at least before 15 days of your payout. On your request, SIP will be discontinued and you can withdraw the fund value.

Editorial Staff at Yourfinancebook is a team of finance professionals. The team has more than a decade experience in taxation and personal finance.