Systematic investment plans are one of the easiest ways to invest in mutual funds. There are two ways you can invest in a mutual fund. You can either invest a lumpsum amount of money or through SIP as monthly instalments. The former option requires you to have a corpus ready, and the aim in most cases is to appreciate the corpus or protect the same.
But what if you don’t have a corpus but want to build one from scratch? Systematic investment plans (SIPs) can be of help here. But there may be occasions when you may not be able to honour your SIP payments. What happens in such a case? Will you lose your money invested, or is there an option to withdraw the fund you have invested so far? Let us find out through this article.
What is SIP investment?
A systematic investment plan (SIP) is a tool that helps investors invest in a mutual fund and not an investment option. By default, you can invest a lump sum in a mutual fund. But with SIP, you can invest a smaller amount of money regularly.
There are two things you have to decide on when choosing a SIP investment.
The first is the fund. You have to choose a mutual fund according to your goal and risk appetite. Since SIPs are made for the longer term, it is better to choose a mutual fund that works for the longer-term period.
The second factor is the regularity of the investment. This can be monthly, bi-monthly, quarterly, or annually. However, most investors choose a monthly investment.
Now, you have to select the investment amount. You have the option to choose SIP investments as low as Rs.500, but SIP works best when you increase the contribution as your income increases.
You may also choose to opt for auto pay facility with your SIP investment. This will ensure the investment amount is debited automatically from your bank account every month. This helps in making sure your investments go smoothly even if you forget about them.
What will happen if I stop SIP payments?
Stopping SIP contributions may affect the growth of your investment, but your corpus will still be valid and accessible. If there is no lock-in period, you may simply withdraw the fund even.
Benefits of investing in SIP
Below are some of the top benefits of investing in a SIP
Low initial investment – One factor that makes many investors stay away from investing is a lack of a considerable corpus to begin investing with. But this is not a concern when you choose SIPs. With SIPs, you can start investing with an amount as low as Rs.500 and still create a considerable corpus.
Compounding – Compounding is a factor that helps a lot when you invest in SIPs. Compounding in invest terms means your returns are reinvested into the corpus so that the compounded corpus will start earning returns. The effect of this may be minimal in the beginning but in the long term, it helps you accelerate your corpus growth greatly.
Conclusion
It is extremely easy to start investing in mutual funds through SIPs. To begin with, you need to find a fund that works for you in accordance with your investment taste and risk appetite. Once you have done that, the hard part is over. Now, you can go to the fund house website or a broker website and start investing in a matter of just a few minutes.
