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Aditya Birla Sun Life AMC Limited

Aditya Birla Sun Life AMC Limited

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    What is SIP?

    Systematic Investment Plan or SIP is an efficient and disciplined mode of investing in mutual funds. It is a facility that can be used for all open-ended mutual funds.


    SIP investing involves investing pre-determined amount of money, consistently at pre-determined intervals (weekly, monthly, quarterly etc) in mutual funds of your choice.

    For example, an investor decides to invest a sum of INR 10,000 every month to purchase units of a large cap mutual fund, Aditya Birla Sun Life Frontline Equity Fund for SIP investing. This means that the investor commits to invest this fixed sum in the selected fund on a fixed date (say the 1st of every month). Investors of course, have the choice to pause, discontinue, enhance or reduce this SIP amount after completion of minimum SIP amounts as per the selected scheme.


    SIPs are preferred choice of investing as it allows investors to invest as per their affordability, at intervals of their choice. It is a useful way to slowly but steadily accumulate a sizeable corpus in mutual funds.

    How does SIP work?

    An investor decides the mutual fund scheme, SIP amount and frequency of SIP.

    • - Thereafter, at every SIP date, the SIP amount is auto-debited from the investor’s bank account

    • - In return, the investors receive equivalent units of the selected MF scheme.

    • - The number of units received is determined basis the NAV prevailing for the selected scheme on the date of SIP.

    • - In this manner, every month (week or quarter), the investor gets more and more units of the scheme.

    Let us illustrate this with an example.

    Investor A decides to invest INR 10,000 each month in the ABSL Frontline Equity Fund (Growth Direct). He begins the SIP on 1st January 2022; his SIP investments are as follows:



    At the end of a year, the investor has accumulated an investment corpus – getting more units when NAV is lower and fewer units when NAV is higher. This ultimately averages out the cost of investment, eliminating the hassle of timing the market.

    How to invest in SIP?

    An SIP can be easily started online through the website of Aditya Birla Sun Life Mutual Fund. To invest in SIP the following steps can be followed:


    • 1. You must select a mutual fund scheme that offers SIP facility. Most mutual fund schemes offer this facility. Mutual fund can be selected as per investing goal, timeframe and risk appetite of the investor.

    • 2. You also have to choose the amount of SIP and frequency thereof.

    • 3. You must then complete your KYC (in case you are not an existing KYC compliant investor) on the online portal. PAN and Aadhar details will be verified for this purpose.

    • 4. Once this is done, the first SIP instalment will need to be paid online.

    • 5. Thereafter, an Electronic Clearing Services (ECS) mandate can be executed online in favour of Aditya Birla Sun Life Mutual Fund. This authorises your bank to auto-debit the SIP amounts each month (week or quarter) on the chosen date to the credit of ABSLMF.


    Benefits of investing in SIP/Why should you invest in SIP mutual funds?

    SIP investing offers many benefits to investors. These include:


    • 1. Inculcating financial discipline
      SIP involves consistently investing pre-determined sums of money at periodic intervals. As SIPs tend to get auto-debited on instruction of the investor, it ensures that investments are actually done regularly. Thus, ensuring investors stay on track with their investment plan.


    • 2. Eliminates need to time the market – through benefit of rupee cost averaging
      SIP investing buys mutual fund units periodically – this means that investors get more units when prices are low and less units when prices are high. This eventually leads to averaging out the overall cost of investment. This evens out the impact of market volatility on investments.
      This eliminates the tricky situation of investors needing to time the market to get their investment at reasonable costs.


    • 3. Benefit of compounding
      With SIP investing, investors can earn compounded returns on their investments. This is because each SIP instalment along with returns earned on earlier instalments are re-invested in the fund, ultimately earning returns on returns for the investors.
      This benefit of compounding leads to potential of earning higher investment returns especially over the long run.


    • 4. Investing convenience and flexibility
      SIP offers several options and additional features. Additional features such as Multi-SIP, SIP Top-up, Pause feature, Any day SIP etc ensures investors have complete flexibility in investing. Multi SIPs allow investors to conveniently across different mutual funds through a single SIP instruction. Any day SIP allows investors to choose the day of the SIP debit as per their convenience and affordability. Pause features allow investors to pause their SIPs in case of cash crunch faced by them. SIP Top-up allows investors to increase their SIP amounts as their incomes rise.
      In this way, SIPs provide considerable investing flexibility to investors.


    Who should invest through SIP?

    Due to multitude of benefits, they offer, SIP investing is suitable for any mutual fund investor.

    - It is more specifically suited for investors who have regular stream of income from which SIP instalments too can be regularly made.

    - Investors who do not want to worry about market timing can choose SIP investing to reduce the impact of market volatility.

    - SIP investing is also best suited for investors who intend to stay invested for a longer investing term.

    When to invest in SIP?

    SIPs can be started whenever investors want to begin investing in mutual funds. In fact, the sooner investors start their SIPs, the higher will be the impact of compounding for them.
    For example – An equity SIP of INR 10,000 started at the age of 40, can yield ~INR 1cr at retirement age of 60 (considering 12% returns from equity MF). Had the same SIP been started 10 years earlier at the age of 30, the retirement corpus would grow 3.5 times to ~INR3.5crs
    This is the power of compounding of SIPs! Thus, the earlier you can start your SIP investments the better!



    SIP or one-time – how should you invest?

    Whether you choose an SIP plan or one-time mode of investing depends on several factors. One of the main advantages of SIP investing, rupee cost averaging is not offered by one-time lumpsum investing. Thus, SIP is advantageous especially in a volatile market as it not only eliminates the need to time the market but also evens out the impact of volatility on your investment. Thus, SIP is advisable especially for new investors.

    One-time investing on the other hand can be advantageous in a rising market so as to lock-in your investment at lower prices.


    How to choose best SIP mutual funds?


    Choosing the best mutual fund for you depends on the following factors:


    • 1. Your investing objective
      Your investing objective should ideally match with the investment objective of the mutual fund. For example, if your goal is to earn capital growth then equity-oriented funds who aim for capital appreciation can be your preferred choice.

    • 2. Your investing time-frame
      Your desirable investing time-frame should also match with the suitable time frame of the selected fund. For example, if investors are looking for short term temporary parking of funds, they can opt for say liquid or overnight funds; but for longer durations they can go for hybrid or equity funds.

    • 3. Your risk appetite
      Your risk appetite should match with the risk profile of the fund. For example, an aggressive investor can choose equity funds or aggressive hybrid funds; whereas conservative investors may prefer arbitrage or debt funds.


    Types of Systematic Investment Plan (SIP)

    Mutual fund houses offer various different types of SIPs each having some unique features. The type of SIPs include:

    • 1. Any day/date SIP
      This type of SIP allows investors to choose any date of their choice (between 1st and 28th of each month) as the date for their SIP. In this way investors can customise their SIP to match the frequency of their income flow.

    • 2. Top-up SIP
      This type of SIP incorporates the option of increasing the SIP amount (by specific % or amount) at regular intervals. This feature can help step up their SIP investments as their income levels also increase. Furthermore, it helps investors maximise the compounding benefits of SIP.

    • 3. Flexible SIP
      This type of SIP allows investors to alter their SIP amounts each month. Investors can increase the contribution in months of high income and decrease or pause the contribution in lull months.

    • 4. Perpetual SIP
      This type of SIP allows investors to keep their SIP in force without specifying any specific tenure. Investors can of course stop their SIPs at their discretion any time during the tenure of the perpetual SIP.


    SIP Calculator

    Simply put an SIP calculator helps investors calculate what returns they can expect to get from their SIP investments.

    You need to input 3 key details – the SIP amount, the SIP tenure (in months) and the % expected returns from the mutual fund investment.

    At the click of a single button, the SIP calculator will summarise your total investment plus total returns earned on your investment. Ultimately you will easily know the future value of your investment.

    FAQ's

     

    SIP stands for Systematic Investment Plan. It is a mode of investing in mutual funds, wherein investors invest pre-determined sums of money at regular intervals in a chosen mutual fund scheme. The frequency of investing can be at your discretion – weekly, monthly or quarterly. It is a disciplined way of investing in mutual funds.

    You can easily start SIP online. You need to sign up for an SIP in a chosen mutual fund with the selected AMC, on their website. KYC documentation and an ECS mandate for your bank is needed to begin SIP investing journey.

    Stopping SIPs prior to achievement of your financial goal is not advisable. However in circumstances that you need to stop an SIP, the following steps can be followed:

    • - An SIP can be easily stopped online, once the minimum SIP instalments as per the selected scheme are completed.

    • - You need to login to the AMC website where the SIP was started and select the ‘Cancel SIP’ option.

    • - Your SIPs will stop once your request is processed by the AMC. However, the invested amount will remain invested and continue to grow until you place a redemption request.

    In case you intend to re-start your SIPs, you can alternatively use the Pause SIP feature to temporary halt SIPs rather than cancelling them in entirety.

    An SIP account is nothing but an SIP that has been set up with a chosen mutual fund scheme.

    The type of SIP you choose will depend on your investment goals and affordability. A salaried individual for example can choose a monthly SIP to coincide with the frequency of his income. A businessman receiving daily income on the other hand can choose more frequent weekly SIPs to ensure his savings are routed to investments in a timely manner.

    Other features such as Multi-SIP and Top-up SIP can also be selected if it suits your financial plan and investing affordability.

    NAV stands for Net Asset Value. It is in fact not the SIP, but the mutual fund in which the SIP has been started that has the NAV. NAV represents the market price of the mutual fund scheme at which it is traded. The SIP instalment can be made at this prevailing NAV and accordingly units will be allotted. NAV changes on each trading day and the NAV of a fund is determined by 11pm of each trading day.

    Selecting the right mutual fund for you will depend on your individual investment requirements. You can consider your investment goals, investing time frame and risk appetite while selecting the appropriate mutual funds for your SIPs.

    Redeeming your SIP is just as simple as starting the SIP. It too can be easily done online. You have two options for this:

    • 1. Cancelling the SIP and redeeming the investment
      You can login to the AMC portal and select the option of ‘Cancel SIP’. Thereafter you can redeem the mutual fund investment from the same portal.

    • 2. Redeeming the investment without terminating the SIP
      You can simply login and redeem your MF investment without cancelling your SIP. In this option, your SIP will continue even after your investment is redeemed.

    There are several simple online SIP calculators available online from which you can calculate returns from your SIP investment. You need to enter the SIP amount, SIP tenure and expected rate of returns. The calculator will display the estimated returns that you can earn from your SIP investment.

    Your existing SIP amount can be increased by selecting the ‘Top-up SIP’ option. You need to login to your AMC online portal, select your existing SIP and activate the Top-up feature. The quantum or % by which you wish to increase the SIP amount will need to be specified. Subsequent SIPs will be at the increased amount.

    How much you invest in different SIPs depends on your income and savings level as well as your financial goals.
    If you have specifically quantified financial goals you can use an online reverse SIP calculator to determine the quantum of SIP required to achieve this goal amount. You will need to enter the SIP tenure and estimated returns from the mutual fund.

    The taxability of your SIP investment on redemption depends primarily on the type of mutual fund and the tenure of your investment (whether long-term or short-term).
    The key thing to keep in mind about SIPs that sets it apart from lumpsum investment is that the investing tenure will need to be separately calculated for each SIP instalment to gauge whether it is a long-term or short term investment.
    For example – Say an investor has invested 24 SIP instalments in a large cap mutual fund from 01.01.2021 to 31.12.2022 and subsequently redeems them. The initial 12 instalments will have been invested for more than 12 months and will thus qualify as a long-term investment; whereas the next 12 instalments will have been invested for less than 12 months and thus will qualify as a short term investment.

    OTM stands for One-time Mandate. This is a one-time registration that you can execute with your bank that authorises the bank to periodically debit your SIP amount/s in favour of your chosen SIP mutual fund.
    This makes SIP investing easy and hassle-free and ensures your SIPs are invested each month automatically.

    Mutual fund investments are subject to market risks, read all scheme related documents carefully.