Systematic Investment Plan (SIP) 2023: What is SIP & It's Benefits

Reviewed by Ananthakumar K

The Gen YZ generation:

SIPs or Systematic Investment Plans is what we keep reading or hearing about when we talk about investing. SIP investing has significantly grown in the last few years.

You’re in the age group of 25-35, an important aspirational phase in life. At this point, you’re not just building your career, your assets, and your investments, perhaps you’re even planning a family. Funding your kids’ education may or may not yet be a prerogative right now, but planning your vacations might be. You’re looking to manage your monthly cash flows too, as also to deal with the uncertainties and medical emergencies that might spring up on you.

To be an investor while also managing these realities of life at your age, you need to have a SIP or a Systematic Investment Plan. There are advantages to being a disciplined investor in your tech-savvy, busy generation. Most SIPs are set up to get automatically funded periodically, in a period of your choosing. This automated repeatability avoids emotional investing. The recommended amounts of investment being small, SIP also reduces risk and the cost of investing, while giving you a top-notch performance due to the compounding effect. For long-term investors starting early such as yourself, following a SIP investment plan is highly recommended.

How can SIP Help you?

When you opt for SIP, the compounding effect ensures that you don’t just grow your principal, which is your actual investment but you can constantly go on increasing the principal amount by leaving the gains in the investment to grow with it. The benefits are observable in the long-term as your profits in turn start earning profits.

After you’ve set the amount that you need and the tenure, you don’t need to monitor the investment constantly. You need to make sure that the account funding your investment has enough money in it to cover your monthly investment amount. Otherwise, the banks charge you a penalty in case of insufficient balance. The penalty can go up to Rs. 750.

However, Jupiter does not charge any penalty on missed SIP payments due to low balance.

Our No-Penalty SIP auto-skips if you’re running low on balance. You can now say goodbye to crazy Penalties on Mutual Fund SIPs – we won’t penalise you for the shortage of funds, or for faltering. Ever

Investing small amounts builds value over time, which is why SIP benefits help develop a good investment strategy for the long-term minus the emotion, impulsiveness, fear, greed, and regret that might show up in short-term trading activities. And since the amounts are small over regular intervals, risk and uncertainty also remain in check. Not just that, repeatability requires certain financial discipline.

Understanding Systematic Investment Plan

As a disciplined investor, you put away your SIP funds or small amounts of money into a predetermined set of investments periodically. You do this via automatic withdrawals from your liquid account to your SIP account. This repeated, regular infusion of equal amounts of funds into the same security or securities is called SIP or the Systematic Investment Plan.

Typically, let’s say you want to allocate equally between a few categories of investments: a volatile category of products – like your trading account; a less volatile category – like your SIP Mutual Funds portfolio; a fixed return category of products – like retirement funds; and liquid products like liquid funds or deposit accounts. Your decisions will be based on your risk appetite at your age, your circumstances, and your personality.

The Mutual Funds route is gaining in popularity – you can allocate your funds among different types of Mutual Fund SIP investments too and be secure in the knowledge that top fund managers would be monitoring them. You invest small amounts regularly and reap the long-term wealth-generation benefits of RCA or Rupee-Cost Averaging.

Let’s say, as an investor you want to take advantage of RCA. You start by investing to build long-term wealth via a Systematic Transfer Plan to fund equal amounts periodically. In time, you build a sizeable portfolio. When you go according to the Systematic Investment Plan, irrespective of whether the NAV or Net Asset Value of your product of choice is high or low, your regular stream of investments will automatically keep the average cost of your units in check. The reason is that you will receive fewer units when the NAV is high, but more units when the NAV is low. That is the benefit of RCA which takes advantage of volatility.

How SIP works?

Market analysis and investment planning help you decide what to buy in small quantities and repeatedly for the long term. You can then set up your SIP investment plans to automatic buying mode. You can also automate your plans for the reinvestment of dividends. The buying can be done manually or automatically, in the weekly, monthly, quarterly timeframe, or a timeframe of your choosing. All you need is a liquid account and you can invest in amounts as low as even a few hundred rupees via SIP.

DRIP or the Dividend Reinvestment Plan is how stockholders opt to purchase additional stock from their dividend earnings instead of receiving them via check or bank transfer. DRIP is also an automatic plan, and how dividends are to be received is specified during account setup. DRIPs are commission-free since a broker’s services are not required. At times, DRIPs offer a discount of 1% to 10% for the purchase of more shares directly from the company.

Online SIP tool

You can put your plan in place by computing the amounts for your Monthly Investment plan in SIP. Input your desired tenure, say 5 years, suited to achieving your goal or your sum targeted amount, say 50 thousand. Say your expected return is 5%. A SIP tool will give you the monthly planned investment amount of 640.

Jupiter Money’s Digital Platform

The Jupiter app gives its users a complete digital banking experience, without physically going to a bank. Its onboarding features, seamless transactions, and paperless reports manage your money effectively. Consciously staying away from the use of jargon helps Jupiter Money turn banking into a pleasure. Users feel its features are truly what people need. Contemporary in its look and feel and its simplicity makes you extract more out of it in record time and with minimal amounts of stress.

A broad range of financial calculators is offered by Jupiter Money. Calculating the performance of your investments becomes easier. Some of the other calculators available are the interest calculator, HRA calculator, retirement planning calculator, EMI calculator, and gratuity calculator. These calculators with their built-in complex formulas are like a performance dashboard for your personal financial matters from your retirement planning to your EMIs to your interest calculations.

In conclusion

In conclusion, it must be said, Systematic Investment Plan is for long-term investors who don’t want to invest in lumpsum amounts or have the time to devote to closely monitoring their investments, or want to minimize risks and keep the average cost of units low, or want to take advantage of compounding, or want to be able to reinvest their dividends.

Last but not least, SIPs democratize investing – they bring investing within the reach of people, irrespective of age, socioeconomic status, or behavioral traits. They are a form of passive investment, allowing people the freedom to continue their full-time occupations and still be investors.

Frequently asked questions

What is Top-up SIP?

You can increase your regular SIP installments by a fixed amount using the Top-up SIP facility.

What is the power of compounding?

When an investment’s earned interest gets reinvested.

What is the difference between Top up SIP and SIP?

Regular Systematic Investment Plan instalments can be increased by a fixed amount using the Top Up SIP facility. Whereas, SIP is a facility in which a fixed amount is invested at pre-determined intervals.

What is Rupee-Cost Averaging?

Due to market volatility, an investor gets fewer units when the NAV is high and more units when the NAV is low. This keeps the average cost of the units in check over the long term.