Wednesday, 6 March 2019

What should be the duration of the SIP?

What should be the duration of the SIP?

What is SIP?

SIP (Systematic Investment Plan) is a smart and hassle-free method of investing in mutual funds. SIP works on the principle of regular investment. SIP allows you to invest a pre-determined amount of money at a regular interval in a disciplined manner, over a period of time. SIP works on the principle of regular investment. The concept of SIP is similar to a recurring deposit where a fixed amount is invested on a regular basis. SIP helps you to create wealth for the future by investing a small amount of money regularly instead of lump sums.

What should be the duration of the SIP?

Most of the mutual fund investors are aware of SIP. In SIP, your pre-determined amount of money is auto-debited from your bank account and automatically invested into a particular mutual fund scheme chosen by you. And the most important, SIPs provide flexibility to buy more units when the markets are down and lesser units when the markets are up. This way, the units are bought at different market rates and investors avail from Rupee Cost Averaging and the Power of Compounding. However, here the question arises what should be the duration of the SIP?

What should be the duration of the SIP?

This is the most important question as there is no unanimity among financial experts about the duration of the SIP. There is also no scientific formula to find out the ideal duration for SIP. How long you should keep your SIP going is a very personal decision. It depends on a number of factors like your income, expenses, risk appetite, investment objective, and other investments. As per financial experts, when investing in mutual funds, it is best to stay for a long period. Because that is when you can get the best returns on your investment. So it would be wise to run the SIP for the longest period possible.

What happens if you missed a SIP?

Nothing will happen to your ongoing SIP account if you missed a SIP for any reason. Your SIP account will not be de-activated. For example, if you missed a SIP due to non-availability of funds in your account, it will be all ok when the next SIP comes, and your SIP account will remain to continue as normal. So if you want to start a SIP, you do not need to think too much about the future SIP payments. Just start a SIP and if there is some financial crisis, it is fine missing a few SIPs and then continue when you have the sufficient funds in your account.

What is the best time to start a SIP?

Mutual fund investors often wait for the right market levels to start a SIP. This is not a good idea to start a SIP as no one can know what is low or high of a market. The idea of SIP is not to time the market. It should not matter if the market is at low levels or high levels and should be started at any given state of the market. The purpose of starting a SIP is to avoid timing the market and get into the habit of investing money in a disciplined manner.

How to extend the SIP duration?

At the end of your SIP completion, you have an option to extend the duration of your SIP to ensure continuity. Normally, you get information and a renewal form from the AMC to extend/renew you SIP. Fill that form to extend the SIP duration and sent it back to the AMC. If you want to extend the duration of your SIP before its completion, then you can just fill the SIP form with your folio number and new duration and send it to the AMC to extend the SIP period. At present, the online option is also available to extend the duration of your SIP.

How to stop the SIP?

You can stop your SIP with few clicks if you have online access to your SIP. For the offline process, you need to send in a written and signed application to the concerned AMC a few days before the next SIP comes. The above procedure of stopping a SIP and the time taken for processing the cancellation of SIP may vary from the fund house to fund house. To avoid the cancellation of SIP in between, always start a SIP initially for a shorter duration and then extend the investment period if you are satisfied with the performance of the chosen mutual fund scheme.

Please note that starting a SIP is not enough, you should also keep a track of your mutual funds’ performance on a regular basis.

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What should be the duration of the SIP?

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