Systematic Investment Plans (SIPs) have emerged as a popular investment method in India, offering investors a disciplined approach to wealth creation. SIPs allow individuals to invest a fixed amount in mutual funds at regular intervals, weekly, monthly or quarterly. These plans allow investors to buy units of the selected mutual fund scheme on a date and frequency chosen by them. This investment strategy has gained significant traction among Indian investors due to its simplicity, affordability, and potential for long-term wealth accumulation.

Systematic Investment Plans (SIPs) have played a crucial role in driving retail participation. Indian Mutual Funds have currently about 10.23 crore (102.3 million) SIP accounts through which investors regularly invest in Indian Mutual Fund schemes.

Key features of SIPs include:

Regular investments: Investors contribute a fixed amount at predetermined intervals.

Rupee cost averaging: By investing consistently across market cycles, SIPs help average out the cost of mutual fund units over time.

Power of compounding: Regular investments over extended periods can benefit from compounding returns.

Flexibility: Investors can start, stop, or modify their SIP investments based on their financial situation.

Affordability: SIPs can be started with amounts as low as Rs. 500 per month, making them accessible to a wide range of investors.

Tax Saving: By investing systematically in Equity Linked Savings Schemes an investor can save taxes under Section 80 C. 

How to invest in SIPs

SIP investments can be made through post dated cheques or through ECS (auto-debit) facility. The bank ECS mandate instruction ensures that the amount gets debited on the exact day and at the exact frequency specified by the investor. The number of units purchased depends upon the  Net Asset Value(NAV) of the scheme on the investment date. 

Types of SIP

  • Any date SIP: Under this scheme the investor is allowed to select a scheme, its frequency and the amount he/she  wishes to invest. The investor has to mention the start date and the end date of the investment on the application form. Based on the mandate the asset management company (AMC) which manages the mutual fund will deduct the amount on the specific date and allot mutual fund units to the investor. The SIP will continue till the end date chosen by the investor. 
  • Perpetual SIP: The only difference between an any date SIP and a perpetual SIP is that in the latter there is no end date. If an investor chooses this scheme, the SIP will continue till the investor requests the AMC to stop.  

Recent Developments

The Securities and Exchange Board of India (SEBI) has introduced several regulatory changes affecting SIPs and mutual funds:

Revised SIP cancellation rules: Effective December 1, 2024, SEBI mandated that SIP cancellation requests must be honored within two working days of submission, both for physical and online applications. This change allows investors to cancel their SIP just three working days before the monthly debit date, providing greater flexibility and potentially saving investors from unnecessary charges due to insufficient funds.

Uniform auto-cancellation policy: SEBI has standardized the auto-cancellation process for SIPs across all Asset Management Companies (AMCs). After the first failed debit attempt, AMCs must notify investors that the SIP will cease after three consecutive rejections. This measure aims to improve transparency and communication between fund houses and investors.

Insider trading regulations: Starting November 1, 2024, SEBI extended its Prohibition of Insider Trading (PIT) regulations to mutual funds. This change prohibits senior employees of AMCs from selling their mutual fund holdings when they possess confidential information about potential issues affecting their firm or its schemes, enhancing investor protection.

Systematic Investment Plans have revolutionized the way Indians approach mutual fund investments. By promoting disciplined investing and leveraging the power of compounding, SIPs have become a cornerstone of long-term wealth creation strategies for many investors. Recent regulatory changes by SEBI have further enhanced the investor-friendly nature of SIPs, providing greater flexibility and protection.

As India’s financial landscape continues to evolve, with rising per capita income and changing consumption patterns, SIPs are well-positioned to play a crucial role in helping investors achieve their financial goals. The ongoing innovations by fund houses, coupled with regulatory support, are likely to further boost the popularity of SIPs among Indian investors.

For those looking to embark on their investment journey or optimize their existing portfolio, SIPs offer a compelling avenue to participate in India’s growth story while managing risk through disciplined and regular investing. 

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Disclaimer

The information contained in this document/Video is compiled from third party and publicly available sources and is included for general information purposes only. There can be no assurance and guarantee on the yields. Views expressed by the Fund Manager cannot be construed to be a decision to invest. The statements contained herein are based on current views and involve known and unknown risks and uncertainties. Whilst Mirae Asset Investment Managers (India) Private Limited (the AMC) shall have no responsibility/liability whatso- ever for the accuracy or any use or reliance thereof of such information. The AMC, its associate or sponsors or group companies, its Directors or employees accepts no liability for any loss or damage of any kind resulting out of the use of this document. The recipient(s) before acting on any information herein should make his/her/their own investigation and seek appropriate professional advice and shall alone be fully responsible / liable for any decision taken on the basis of information contained herein. Any reliance on the accuracy or use of such information shall be done only after consultation to the financial consultant to understand the specific legal, tax or financial implications. 

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