Systematic Investment Plan: Better option for monthly saving

Systematic Investment Plan or SIP is one of the two methods of investing in mutual funds. The investors who were earlier unwilling to make one-time investment due to the involvement of a large sum in spite the desire to invest now have the option of investing in regular installments of SIP. The reasons can be any like, low income, the philosophy behind investment and many more. Keeping in view the restrictions that the clients faced while investing a lump sum, mutual fund experts felt the urgency to devise such a plan which could attract more and more investors who otherwise kept a distance from investing. SIP is similar to recurring investment but far better than that in many ways.

How SIP is better than other saving options?

As we all know that saving is entirely different from investing. But, many people equate RD and SIP. It is an entirely a wrong practice. To understand the vast difference among the two options the following points must be read:

• There are no time restrictions in SIP. As, there is no minimum or maximum period defined for sip investment. One can invest for longer duration in equity-oriented schemes while liquid funds help to invest for relatively shorter time duration. Unlike, other investment methods which have some minimum and maximum stipulated time-period. 
• The client doesn’t need a bulk amount, for investment. The idea behind investing through SIP is to reduce the burden of one-time investment from the shoulders of the client. But, you require a lump sum to invest in other options available for investing, like FDs. 
• An investor is free to withdraw the invested sum (after lock-in period if any), as and when required. There is no entry or exit load (in some schemes there is 1% exit load). But, if you withdraw your money from FD/RD before the maturity period, you will have to pay a penalty for it which will be deducted from the amount which the client had invested initially. Therefore, incurring a loss in the principle amount.
• SIP can be paid automatically through the bank account of the investor, making use of the facility called auto-debit/ECS. The investors need not go again and again to withdraw and deposit cash. But, same is not applicable to FD. An investor has to go to the branch repeatedly, either to commence the investment or to withdraw it. Standing instructions can not be given for same. 
• Systematic Investment Plan brings about financial cohesion. It is possible because the investor knows he/she will have to spare a certain amount for the purpose of investment. This automatically brings the income and expenditure in proper shape. But, in other investment options like FD, you have to accumulate money. The idle money in your account, during the process of accumulation, will attract you to spend it.

With the growth of technology, using SIP has become even more comfortable. SIP was designed as a method of investing in the mutual funds which followed a regular installment method. Now, you can use the auto-debit option to get your installment for SIP debited from your saving bank account. Just give a standing instruction to your bank for debiting the amount and from thereon you need not have to remember the date of paying SIP. You can also select your scheme through the various investing options provided by the AMCs. Now, it has become more easy for the investors to plan and pay their SIP installments.