A systematic way of maximising returns on investment

Updates from :  the Hindu :

What is a SIP?

A Systematic Investment Plan (SIP) is a way to invest in mutual funds wherein a fixed sum of money is put into a mutual fund scheme at a specified date every month. It is considered to be investor-friendly and an efficient manner of investing in the capital markets as one can start investing with small monthly contributions instead of first building a huge investment corpus.

It is a hassle-free manner of investment as well since one can issue standing instructions to the bank for a specified amount to be transferred to the fund house/distributor every month at a pre-determined date.

How can one start a SIP?

There are two ways of starting an SIP. One can use the direct way of investing though the fund house or go through a distributor. For direct plans, an investor can go to the website of the fund house for the scheme in which the SIP has to be started.

All the fund houses have a link on their portals for investors who want to start an SIP. Typically, only the Permanent Account Number (PAN) and/or Aadhaar is needed to open an account.

Thereafter, one can select the scheme, SIP amount, starting date and duration of SIP. If one opts for a distributor, then the same process can be done online on the distributor’s portal.

Is it better to start direct SIPs or go through a distributor?

The returns for those investing directly will always be marginally better than for those investing through distributors as direct plan investors do not need to pay distributor commission. And since SIPs are typically long-term investments, the difference in the total corpus, at times, could be substantial.

However, going through a distributor has its advantages as well as one can get access to investment advice, help in fund selection and a consolidated view of the holdings through an app. On the other hand, if an investor wants to start 4-5 SIPs with different fund houses, then a direct approach would mean going to each of the fund house websites and opening a folio and keying in the details to start the SIP. However, there are some fintech start-ups that offer direct SIP options on their platform.

Is a demat account necessary for starting a SIP?

No. One does not need a demat account to start a SIP. As mentioned earlier, one can just start a SIP by opening an account — folio in industry parlance — through the fund house or the distributor. In fact, this is also one of the reasons for the increasing popularity of SIPs as one need not open a demat account through a stock broker.

What are the benefits of a SIP?

Timing the market is the most difficult thing when it comes to equity investment. SIPs, in a way, address this issue. SIPs capture every rise and fall of the market and hence, an investor need not worry about the level of the market. Also, there are sector-specific funds — pharma, banks, technology, etc. — and also those based on the size of the companies — such as large-cap, mid-cap, small-cap funds — that allow the investor to have a diversified portfolio rather than concentrate risk in a few companies.

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