Looking out for SIPs to invest in but not sure if they are the best option for you? Here are some common things investors should know about to help you understand the scheme better.

Systematic Investment Plans or SIPs are popularly known way of investing into mutual funds. When it comes to mutual funds, having a good amount of research, knowledge about the market and how it works, is something crucial for investors.

With SIPs, you can invest a small amount of money every month and have a portfolio manager who invests the same for you and gets you returns on the investment. SIPs are a wise way to go for if you are looking for long term investments.

Before you research for the top SIP plans available for investments, it better to understand the basics and get the common doubts cleared. Following are some of the common things investors must be clear about before investing in SIP plans:

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  • How does SIP work?

The first thing that you need to know about SIP is that when you invest money every month, you get certain number of units basis the current market rate called as Net Asset Value or NAV. The unit value falls or rises depending on the market volatility. Every time you invest money, new units are added to the investments depending on the ongoing market rate. Thus, you buy units at different rates, and you benefit from power of compounding and rupee cost averaging.

  • Investing in SIP

You can go to any Mutual Fund investment companies and banks across the country and check out which SIP plan you like the most based on your research and understanding. Either you can give the Investment Manager post-dated cheques that will be deposited every month as your SIP, or you can directly transfer the money every month through your bank account hassle free.

  • Opening the account

You can directly approach the mutual fund company that you like, request to open a SIP and fill out the form. In case you have a broker, he/she can buy the fund for you, but opening the account needs to be done by you directly.

  • Minimum investment

With SIP, there is no minimum investment. However, you can invest as low as Rs. 500 per month and even higher.

  • Risk with SIPs

The risks that come with SIPs are significantly lesser than directly investing in stocks. The risk depends on the kind of companies and markets that your money has been invested in and how they have performed over a period of time. To ensure minimum risk, it is always advisable to study the history of the fund you are investing in and take a decision accordingly.

  • Entry and exit fee

Yes, there is an entry and an exit fee that you need to pay when you are either investing through SIPs or exiting out of the same, so make accommodation for that as well.

Mutual Fund investments are subject to market risk. Please read the offer document carefully before investing.