SYSTEMATIC INVESTMENT PLAN

INTRODUCTION

Systematic Investment Plan (SIP) is the style of investment in which the investor is supposed to
select a specific mutual fund as per his/her preference and invest the uniform amount of capital
in that mutual fund on the periodic basis. Systematic Investment Plan involves the concept of bit-
wise investment spanning over a long duration instead of directly investing a lump sum amount
of capital in one go. An investor through Systematic Investment Plan invests small amounts of
capital either on monthly basis or quarterly basis or half-yearly basis for a long duration of time
leading to generate higher returns in the long run. The Systematic Investment Plan is a smart way
of investing that enables an investor to invest from small amount of money to considerable
amount of capital as per the choice, requirement and financial goals of the investor. Although the
systematic investment plan is also surrounded by the market and event driven short term risks,
yet the selection of the appropriate mutual fund in terms of experience of fund manager, safety of
capital and returns of the fund reward the investors’ patience and perseverance in the long run.
The Systematic Investment Plan (SIP) is a smart financial planning tool that helps you to create a
wealth by investing small sum of money every month, quarter and yearly basis over a period of
time in mutual fund scheme of our choice and it inculcate the habit of saving. Systematic
investment plan may be either quantity based or amount based. In SIP the investor get a benefit
of power of compounding that underlines the essence of making money work if only invested at
an early age. In rupee cost averaging one need not worry about where share prices or interest are
headed as investment of a regular sum is done at regular intervals; with fewer units being bought
in a declining market and more units in a rising market.

A Systematic Investment Plan , more popularly known as SIP, is a facility offered by mutual
funds to the investors to invest in a disciplined manner. SIP facility allows an investor to invest a
fixed amount of money at pre-defined intervals in the selected mutual fund scheme. The fixed
amount of money can be as low as Rs. 500, while the pre-defined SIP intervals can be on a
weekly/monthly/quarterly/semi-annually or annual basis. By taking the SIP route to investments,
the investor invests in a time-bound manner without worrying about the market dynamics and
stands to benefit in the long-term due to average costing and power of compounding. Systematic
Investment Plan (SIP), is the ideal way of investing in mutual funds in a regular and systematic
manner. A SIP works on the basic rule of investing regularly, enabling you to build wealth over
time. Under SIP, you invest a fixed sum every quarter, month, or week as per your convenience.
The plan is aimed at getting in low income households in rural and semi – urban areas to benefit
from long term investment in equity as an asset class. A Mutual Fund is a trust that pools the
savings of a number of investors who share common financial goal. The money collected &
invested by the fund manager in different types of securities depending upon the objective of the
scheme. These could range from shares to debentures to money market instruments. The income
earned through these investments and its unit holders in proportion to the number of units owned
by them (pro rata) shares the capital appreciation realized by the scheme.

How SIP Works ?

Before you start investing, it's important to understand how SIP works. A SIP works on the basis
of periodic and consistent investments, quite like a recurring bank deposit. The investment
amount can be auto-debited from your bank account on the basis of standing instructions, and the
corresponding amount of mutual fund units are allocated to you. The number of units received
depends on the scheme's current Net Asset Value (Nav). In SIP offered by SEBI registered
mutual funds, your investments are managed by a team of professional fund managers for which
you pay a nominal cost as disclosed in the Scheme Information Document of the respective
Scheme.

After having applied for single or multiple Systematic Investment Plans, the equivalent amount
of investment is automatically transferred from investors’ bank account and get invested in the
mutual funds that investor have bought at the fixed time duration. By the end of the day, the
investor gets the units of mutual funds assigned relying on the Net Asset Value of a mutual
fund. Along with every investment in a Systematic Investment Plan in the country, extra units
are infused into investors’ account based on the market value. With each investment, the capital
reinvested is enormous and thus is the return on investments. This is at the disposition of the
investor to obtain the returns at the end of the Systematic Investment Plan’s term or at regular
intervals.
SIP is Systematic Investment Plan which is very helpful to salaried and middle class men. They
can invest their savings into Systematic Investment Plan and collect huge funds for future. SIP is
paid in monthly or quarterly as per the scheme. Opting SIP an investor can invest their savings
into it and can save is money doing that. SIP is good because if it seems that market will goes
down in few days so investor can safely withdraw his money and can save his money.
Let us take an example to understand how an SIP works. Suppose Mr.X decides to invest in a
mutual fund through SIP, he commits making a monthly income of Rs 1000 for a period of 12
months starting Jan 1 2017 in a mutual fund named ABC. The payments can be done by issuing
12 post dated cheques of Rs 1000 each or through ECS facility. (Sunder Shankaran) Vision Book
Date Monthly NAV (b) Number of Units
Investment (a) (a)(b)
(Rs)

1- Jan 1000 46.29 21.603

1-Feb 1000 48.08 20.799

1- Mar 1000 52.78 18.947

1-Apr 1000 56.36 17.743

1-May 1000 58.42 17.117

1-Jun 1000 56.42 17.723

1-Jul 1000 62.14 16.093

1-Aug 1000 67.58 14.797

1-Sept 1000 71.7 13.947

1-Oct 1000 76.19 13.125

1-Nov 1000 83.97 11.909

1-Dec 1000 89.92 11.121

Rupee Cost Averaging is an investment technique applied to regular fixed instalments in a
mutual fund scheme. As the amount is fixed and regular, more units are bought when the market
price of shares is low and lesser units are bought when the price is high.

For Example: A person invests Rs.1000 for ten months in SIP. We willfind out that the actual
average purchase cost of asset would be lower than the average NAV of his investment over 10
months, which is the key benefit of Rupee Cost Averaging. Actual average purchase cost as per
SIP = (1000 x 10) / (100+200+67+50+45+40+37+34) = 14.06.
The invested money can be utilised in 3 types of markets:
1. Equity Market
2. Debt Market
3. Money Market

Benefits of SIP Investing

There are many benefits or advantages of Systematic Investment Plan . Some of the benefits are
listed below.

1. Power of compounding

When you invest regularly through SIP and invest for the long term, the benefits are magnified
by the compounding effect. Compounding effect ensures that you earn returns not only on your
principal amount (actual investment) but also on the gains on the principal amount i.e. your
money grows over time as the money you invest earns returns. And the returns also earn returns.

2. Ease of Investment 

It is the best advantage of the Systematic Investment Plan. One can choose to start investment in
a decisive, convenient, disciplined and a phase wise manner. The convenience in initiating
investment can be as low as Rs. 100 on monthly basis and can be as high as per the wish of the
investor.
3. Rupee Cost Averaging

Systematic Investment Plan provides the investor an opportunity to participate in the capital
markets without actively timing the market. The benefits of the SIP could be availed by enabling
investor to purchase more units when the price declines and less units when price shoots up. This
style assist investors to reduce their average cost per unit of investment through the procedure
known as Rupee Cost Averaging.

4. Lucrative Alternative
Systematic Investment Plan acts as the modern and a lucrative alternative to conventional style
of investments such as Fixed Deposits, Public Provident Funds and other financial instruments.
The mutual funds that function under Systematic Investment Plans have the massive potential to
help grow investors’ wealth in a consistent and a low-risk manner. Systematic Investment Plan
also gives higher returns as compared to its traditional counterparts.

5. Protects capital

As compared to one-time lump sum investments which lead to huge losses during market
downfall, Systematic Investment Plans have the potential to protect capital from drastic market
crash as it follows Rupee Cost Averaging technique.

6. Financial discipline

Though the financial discipline is a very essential aspect of every person’s life and yet on many
occasions people fail to display this aspect while investing or planning their finances. Systematic
Investment Plan acts as an enabler of the financial discipline and instils this attitude in the
individual right since the inception of the investment. With the choice of the automated
payments available, investors now even need not to undergo the pain of physically operating
their investment every time.

7. Financial goals

Systematic Investment Plan falls in line with the financial goals of the individuals. One can
choose to invest in any mutual fund and can also decide the tenure as per one’s financial needs
and objectives.Systematic Investment Plan comes as a savior in times of any financial crisis
related to investor. Investor can decide to halt the Systematic Investment Plan at any time.
Further the investment can also be redeemed at any time provided that there is no lock-in period
in the plan

Drawbacks Of SIP

Along with the advantages thre are many disadvantages or drawbacks of Systematic Investment
plan . Some of them are :

1. Insufficient funds: Inadequate balance in the investor’s bank account can lead to

dishonouring of the cheque or ECS (electronic clearance service) instructions.
2. Averaged Returns: Since SIP averages cost, it also averages the returns earned by
investors.
3. Difficult returns calculation: Investments are made at different prices each month.
Therefore, it does not make much sense to use the standard profit formula. Investors
might have to use different formulas for returns.
4. Fixed Amount: The investor can invest only a fixed amount, irrespective of the
market conditions or his own financial position of the investor.
5. Suitability: SIP is unsuitable for people with unpredictable cash flows, as they might
face difficulty in committing a fixed amount each month.
6. Doesn’t work for irregular income: This method is not suitable for investors who
do not have reliable and regular cash flow as the investment is to be made at
predetermined intervals.
7. Time-frame: SIPs are known to give good returns over a long time period. However,
if an investor invests in a SIP over a shorter duration, the returns may not be that
attractive, as there is not enough time for rupee cost averaging to take effect.
8. Lack of defined exit strategy: SIPs do not have a well-defined exit strategy. The
timing of your exit is left up to you. If you don’t possess adequate knowledge about how
the market actually functions, you could be rendered helpless when it comes to
withdrawing your funds.
 Types Of Systematic Investment Plans

Although there are a variety of Systematic Investment Plans are available across the market but
some of the popular types of Systematic Investment Plans are mostly preferred by the investors.
Some of those popular types of Systematic Investment Plans are discussed here:

I. Flexible Systematic Investment Plans: Alternatively known as Flexi SIP, it lets the

investors to modify the investment amount as per the individual’s financial conditions and
the market circumstances. In case of personal financial crunch or adverse market scenario,
one can reduce the amount of investment in SIP whereas in the scenario of personal wealth
addition or bright market conditions, one can enhance their amount of investment in SIP
using this type of Systematic Investment Plan.

II. Trigger Systematic Investment Plans: Trigger Systematic Investment Plan implies a trigger
option is available with the investor for their SIP investment. For example, a trigger could be
set like the investment shall be withdrawn from the bank account and used for buying the
units of the selected Mutual Fund scheme only if the Net Asset Value of the scheme declines
below a trigger level set by the investor. Other trigger options such as specific dates or price
levels of indices are also used by the investors as triggers. This type of Systematic
Investment Plan is generally recommended to those experienced investors who possess the
expertise and experience to implement these triggers efficiently.

III. Step up Systematic Investment Plans: Alternatively known as Top up SIP, it permits the
investors to upgrade the amount of investment in SIP at fixed intervals of time. This kind of
Systematic Investment Plan works well for the regular income working class who expect a
raise on yearly basis.

IV. The Systematic Withdrawal Plan supports an investor by getting a fixed regular amount
which can help him or her in managing his or her children’s educational expenses or in
getting a proper income in his or her retirement years.
V. Perpetual Systematic Investment Plans: This kind of investment applies to all range of
investors. While getting started with the Systematic Investment Plan, the SIP requires the
investor to enter the start and the end date of the SIP. In a few cases, investors set the ending
date making SIP a definite time SIP. However, in most of the cases, investors do not mention
the ending date which implies the SIP has now turned into a Perpetual Systematic Investment
Plan. With no ending date of SIP, the Perpetual SIP automatically sets the ending date as
2099.

Factors Affecting Selection Of Best Mutual Funds For

Systematic Investment Plan

While selecting the mutual funds for Systematic Investment Plans, investors should set some
selection criteria which facilitates the selection of Best Mutual Fund.
 First of all, the Size of the Asset under Management matters the most. Generally, the
asset size of Rs. 500-600 crore is assumed to be the benchmark size for picking the
mutual fund. Though the lower assets size mutual funds can also be opted for investment
but that comes with the additional and unforeseen quality risks which investor is willing
to take.
 Second factor is the life of the Systematic Investment Plan. If the tenure of the Systematic
Investment Plan is long, it is treated as the ideal investment. If the capital stays invested
as long as possible, it grows over the period of time and the power of compounding effect
multiplies the capital to result into a significant sum at the end of the tenure of the
investment. Thus it is recommended to invest the capital on periodic basis even if that is a
little amount. And also to stay at least invested for long time in case investing on periodic
basis does not work out.
 Third factor is the reputation of the fund manager. The name of the fund manager is
extremely crucial while deciding on the mutual funds as their quality and ability to handle
such large funds could be assessed based on their reputation in the market. The fund
manager can be an individual or an institution. Their experience to tackle the
uncertainties, identifying the appropriate investment opportunities, managing hefty
investment funds and maneuver through volatility of the market plays as a determining
role in picking the right mutual fund.
  Forth factor is the self-evaluation of the risk tolerance, financial objectives and
requirements. Based on which the selection of the Mutual Funds depends. As one can go
for those mutual funds where risk levels and financial objectives match with investors’
risk-return profile.
 Fifth and final factor is analyzing the fund quantitatively which is by examining various
aspects of the mutual funds such as previous years’ performances, expense ratio, financial
ratios, exit load and lock in period.

SIP OR ONE - TIME INVESTMENT

One-time investment

In this mode of investment, you make a one time payment of a considerable sum of money. A
one-time investment plan is a type of investment where a lump sum amount is invested in one go
in a particular scheme for a specific duration. As an investor, if one has a substantial amount of
money with higher risk tolerance, they can invest in a one-time investment plan. Lump sum
investments are generally made for longer terms which improves the chances of earning higher
capital gains. Usually lump sum investments are ventured by big players and investors, in stocks
especially those linked to assets that are likely to acknowledge in the long term, making the
investment beneficial except in cases of high volatility.

Monthly SIP

On the other hand, in an SIP, a fixed amount of sum is deposited at regular intervals of time in a
mutual fund scheme. In short, one-time investment mode can be chosen if you have money in
hand right now that can be invested, and an SIP can be chosen if you are expecting a regular

inflow of money in future. First-time investors are advised to take the SIP route . It is a scheme
where the investor make investments to receive a specific sum of money as pay out every month.
This monthly pay out amount is based on investments that get accumulated in the scheme over
time.
SIP Investment One-time Investment

Periodic investments in a tenure One-time investment in a tenure (lump sum)

Earns better during market lows Earns better during market highs

SIPs can protect investments from One-time investments can lead to major loss during market crash,
potential market crash which happens often enough

How to customise your SIPs?

Many people, especially salaried employees, prefer monthly SIPs. It is because you can quickly
transfer the SIP amount from your bank account to the selected mutual fund when you receive
your monthly salary.

Frequency of your SIP

Mutual Fund houses offer you the facility to invest in SIPs through daily, weekly, monthly, or
quarterly facilities. Moreover, there are several types of SIPs, and you can choose the ones you
prefer depending on your financial goals.

What is NAV in SIP?

Net asset value (NAV) is the price at which investors can purchase or sell mutual fund units. The
NAV of most mutual funds is updated on a daily basis after the business hours. All mutual fund
transactions happen only at the prevailing NAV. Every time you invest via an SIP instalment,
your cost of purchase will be the prevailing NAV.

How to open an SIP account?

To open an SIP account, you first need to hold an investment account with the fund house of
your choice. You have to complete KYC verification before you can get started with your SIP
account. The verification required your PAN, proof of address and a photo in the prescribed
format. Once you have undergone KYC verification, you can set up an SIP account within your
investment account by filling up the 'Start/Initiate an SIP' form.

How to select mutual funds for SIP?

Every mutual fund scheme comes with a set of objectives to achieve. Therefore, the risk levels of
mutual funds vary across fund plans. You have to assess your requirements and risk tolerance.
You may choose to invest in only those funds whose objectives and risk levels are matching your
profile. You have to analyse the fund from various angles such as past performance, expense
ratio and financial ratios. Invest in those funds that stand out among others.

How to redeem SIP mutual fund online?

You can redeem your SIP investments online by logging in to your investment account held with
the fund house and terminate your SIP by submitting a 'Terminate SIP form'. If you don't
terminate your SIP, then you will purchase the fund units on the next SIP instalment date. If you
don't want to terminate your SIP, then you can directly redeem the fund units purchased through
SIP by placing a redemption request. Your transaction will be processed at the prevailing NAV.

REVIEW OF LITERATURE:

Mutual funds over the years have gained immensely in their popularity. Apart from the many
advantages that investing in mutual funds provide like diversification, professional management,
the ease of investment process has proved to be a major enabling factor. However, with the
introduction of innovative products, the world of mutual funds nowadays has a lot to offer to its
investors. With the introduction of diverse options, investors needs to choose a mutual fund that
meets his risk acceptance and his risk capacity levels and has similar investment objectives as the
investors.
 Mr. Pankaj Gera (2016) Inflows thru Systematic funding Plans (SIPs) in Indian mutual
finances (MFs) hit the $1-billion mark in January, marking sustained retail interest in
equities and listed securities as asset elegance in a rustic that had hitherto largely
preferred assets and bullion as stores of cost.
 Dr. Mamata Sharma Pareek (2017) there are various ways for the investment of the
financial savings like government bonds, actual-property, regular deposits.
 Mrs. Niharika Gyptha (2018) monthly Systematic funding Plans helps you to make
investments cash in mutual finances each month in a small amount. You could restore
some quantity each month.
 Mr. Rokesh Lalith Kumar (2018) Systematic switch Plan (STP) allows you to park a
lump sum in a mutual fund scheme and transfer a set sum at everyday durations to some
other mutual fund scheme within the equal fund house. as an instance, you have got a
lump sum to invest.
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 www.assetmanagement.com
 SSRN-id3734820 journal
 Jaison David, G. P. A study on investment decisions based on Systematic investment
plan,Value averaging and Lump-sum investment plan . International journal of research and
analytucal reviews.
 kapoor, D. A. Comparative study of SIP with one time investment plan :An investors
perception.

 IJCRT.ORG