Four Tips to Invest in Systematic Investment Plan

Mutual funds are collective investment vehicles that offer significant returns over a period of time. Thus, you should invest in them periodically in such a way that you will be able to build a large corpus of fund over a period of time. Only when the investment corpus is large, you will be able to avail substantial returns.

Having understood this fact, several investors are keen to invest in a scheme on regular basis – monthly, quarterly, or yearly. However, the hustle and bustle of everyday life might cause you to forget the deposit date, thus affecting the frequency of investment. To avoid such issues, mutual fund houses and brokers offers the service of Systematic Investment Plan or SIP.

An SIP is a medium to invest funds in a particular scheme on regular basis. You can contact your broker or approach an independent mutual fund house to invest in a scheme through SIP. To simplify this for you, here are a few investment tips:

1. Plan the duration

SIPs invest in a particular scheme on periodic basis. However, you are required to select the duration of investment or the target investment you want to achieve over a period of time. To achieve this, you are required to decide the period of investment.

2. Know the type of SIP

SIPs are of two types – unit based and amount based. The unit-based SIPs will buy fixed number of units of the selected scheme at the pre-decided interval. The amount-based SIP will invest a particular amount in the selected scheme. Both the types of SIPs will depend on your investment goal and risk appetite of the investor.

3. Understand the minimum investment clause

To invest in a particular scheme, you are required to understand the minimum investment amount. Generally, the minimum investment amount for an SIP is different than that of the individual scheme. The minimum investment amount is Rs. 500 while the maximum amount is not fixed.

4. Look for Tax Savings

By investing in an ELSS scheme, you will be able to avail tax benefit under Section 80C of the Income Tax Act. Maximum investment amount in such scheme using SIP is limited to the maximum sum of Rs. 1 lac.