Published on September 22nd, 2020
In 2020, amidst the COVID19 crisis, investors are being cautious of the modes of investment that they are currently choosing. With the economy taking a hard hit, the state of markets in the near future might be grim.
Therefore, it is extremely essential to know what kind of investment options are available in 2020. When compared to the share market, mutual funds are again proving to be a safer bet in the current scenario.
A mutual fund is an instrument of investment wheremoney from many investors is pooled to invest in different securities, shares and government bonds Once you have understood what is a mutual fund, it is important to know about the ways in which you can invest.
A systematic Investment Plan or SIP is a scheme of investing in a Mutual Fund on an installment basis instead of paying a lump sum amount at once.
The process of investing a lump sum amount at once is called mutual fund lumpsum investment. As far as SIP is considered, it attracts the most number of investors, especially those who want less risk and are new to the market.
The returns from this mode of investment can be calculated with the help of a SIP calculator.
A SIP calculator is an online tool where you will have to enter the deposit amount, rate of return, and year up to which you want to keep the investment running.
The result will show you a rough estimate of the returns you will be gaining at the end of the period.
Through SIP investment, your mutual fund returns will gradually keep growing.
However, before stepping into the decision of a SIP investment policy, it is important to understand some essential facts about SIP.
Learning about these facts will help you make better decisions regarding your investments as well as give you in-depth knowledge about the dynamics of SIP.
7 Essential Facts About SIPs
The seven most important facts about SIPs have been laid down below for your better understanding of this investment scheme. Taking a look at them will help you a great deal.
1. You Can Increase Your SIP Amount
There is no unchangeable fixation on the SIP amount you have to pay. The scheme known as top-up SIP allows you the advantage of increasing your SIP amount once your income has increased. Suppose your monthly SIP is Rs.
5000. With the increment of your salary, you feel like you can increase your SIP amount by Rs. 1000. This can be done without qualms. Also, the reverse is also true.
If you are facing financial difficulties you can reduce the SIP amount. In either case, a SIP calculator will be useful to ascertain the change in the numbers at the end of the investment period.
2. SIP For Both Equity And Debt Funds
It is seen as a common misconception that SIPs are only available for equity funds and not debt funds. However, the opposite is true.
You can use the SIP scheme for debt funds as well. Depending on what your priorities are you can use SIP for equity funds for best results in the long-term and debt funds in case you want to make the best of the short term.
Use a SIP calculator to analyze which form of the returns is most suitable.
3. Exit Load
Exit load refers to the cost that the investor has to pay if he sells the mutual fund units before the specified time period. As SIPs are investments in series, each separate SIP is treated as a new investment.
So if the exit load is charged on your mutual fund units, it will be charged on all the SIPs which have not completed the specified time frame.
4. SIP Pause
The pandemic has badly hit the income of the investors. Paying SIPs during these times may seem like a financial burden on many. To help cope with this issue the option of pausing your SIP can come off as a great relief.
You can pause your SIPs for a particular period of time during which no changes will be made to your mutual fund units.
In this way, you do not have to liquidate your SIPs before the ideal period you had in mind. Once you restart your SIP, use a SIP calculator to check the changed equation.
5. SIP In Slumping Market
Despite the overall economy being hit badly, it comes off rather as a paradox that SIPs work more effectively in a slumping market.
If you are paying the same monthly SIP amount, it would naturally follow that you will be able to buy more mutual fund units than before owing to the fall in their prices. Hence, the SIP calculator will show you greater gain on the same SIP.
6. Taxation On SIP
Unlike lumpsum investment, where the amount is deposited at once and hence taxed only once, each SIP is treated as a separate and new investment and hence are liable for taxation.
7. SIP Insurance
One of the lesser-known things about SIP is that they are insurance covered beforehand. This means that you do not have to pay a separate fee to get an insurance cover for your SIPs.
This option allows the SIPs to be continued and safe following the demise of the principal investor and the nominee can take up the maturity sum.
Once you get acquainted with these facts, your overall take on the SIPs will be better researched and more accurate.
These pieces of information will help you avoid any unnecessary scenarios that might otherwise have popped up in the future. These would also help you in taking a decision if you are interested in investing in mutual funds in 2020.