When you get your salary cheque, you promise yourself you will start saving by putting aside a little sum every month. But, all you do is make the same promise month after month, and you just end up making the promise every month, butno saving really happens.
Assuming that you have an appetite for a little risk, the best way out to keep the promise is to start a systematic investment plan (SIP) with a mutual fund scheme. Unlike a one-time investment option, where you invest a lump sum amount at one go once, an SIP allows you to invest small sums at regular intervals.
This is how it works
While filling up the application form of any mutual fund scheme, opt for a systematic investment option the SIP option instead of instead of opting for a one-time investment. In most cases, you will be asked to select between a quarterly and monthly investment plan. For instance, you can either sign 12 monthly or four quarterly post-dated cheques of equal amount or authorize your bank to debit the amount from your account every month.
The fund company will also ask you for the date on which the withdrawals from your account should take place on a monthly or quarterly basis. It is important to keep in mind that most companies are not really comfortable about changing the date once the SIP comes into effect.
Fund houses usually prescribe a minimum instalment of Rs500 for a monthly SIP. However, Reliance Capital Mutual Fund has recently started providing an option of a minimum instalment of Rs100.
As in the case of the one-time investment, there is an entry load that ranges from 2-2.5% for SIPs. An entry load is the commission that an investor has to pay while purchasing units of a mutual fund. And, almost all the fund companies charge this entry load.
To avoid the hassle of filling forms and signing a series of cheques, you can invest through online portals such as www.icicidirect.com. Not all mutual funds or online finance portals provide this service, as banks require customers to fill a physical form of authorization for a direct debit facility. So, the online platform may not be a convenient mode of beginning an SIP.
Once your SIP comes into effect, your fund company will send you an account statement every month or quarter informing you about the number of units and the net asset value (NAV) at which it has been credited to your fund account. An SIP is particularly useful in case of equity funds, as you can average-out your cost of buying mutual fund units. When the NAV of the fund goes up because the market is rising, you get fewer units and when the fund’s NAV is low or is falling, you get more units.
There are investors who have committed to an SIP for 99 years. So, what are you waiting for?