The popularity of SIP Investment has risen like never before. However, a few investors are still confused about SIP. In this video, we are helping them to clear their confusion once and for all.
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00:00 The popularity of SIP investment has risen like never before.
00:04 And people like me are having a lot of doubt about SIP like that how should they go about
00:08 it and what really the SIP stands for.
00:12 So in order to clear all the doubts and to remove all the confusion we are joined in
00:16 by our special guest Vishwa who is a special correspondent with Outlook money.
00:21 Thanks Vish for joining us.
00:23 So first of all I would like to start off with this question that youngsters like me
00:27 who has just taken up their job.
00:29 So what exactly is an SIP?
00:31 Can you familiarize those people with SIP?
00:34 See SIP as it stands for systematic investment plan.
00:38 So it is actually not a kind of investment but it is a mechanism to invest in mutual
00:44 funds.
00:45 Right.
00:46 So mutual funds we all know that they are equity linked.
00:49 So it depends on how the market performs the returns of the mutual funds are according
00:53 to that.
00:54 But you can invest in mutual funds in different ways.
00:58 First is you can just you know you have a huge amount of money and you just invest that
01:02 whole money in the mutual fund plan.
01:05 The other thing is to invest monthly a particular amount of sum in a mutual fund.
01:11 So to do that we have a systematic investment plan.
01:15 So what systematic investment plan or an SIP does is it allows you to invest a particular
01:19 sum every month or periodically it can be every quarter also in a particular mutual
01:24 fund.
01:25 So that is an SIP.
01:26 But you have a lot of other avenues as well in which you save monthly like FDs and RDs.
01:31 So how SIP is different from RDs and FDs?
01:34 Right.
01:35 So see like I said it is linked to the stock market.
01:41 If you are investing in an equity plan or there are also debt mutual funds which are
01:46 you know if you want to invest in government securities and you know corporate bonds.
01:50 So then you have debt mutual funds also.
01:52 The problem with RD and FD is while they are very safe investments they are not linked
01:57 to the market performance.
01:59 But the returns are not that high.
02:01 So right now as you know that RBI has been cutting down the lending rate for the last
02:08 four monetary policy committee meetings as we know.
02:12 So consequently FD rates are also falling.
02:15 RD rates are also falling.
02:17 Bank deposits are not giving that good returns.
02:20 So that's why if you want better returns over a long term then mutual funds are the option
02:25 for you.
02:26 And can you give a glimpse of like what kind of difference is in between the returns we
02:30 get in the SIP and mutual fund per se and in FDs?
02:35 Again it depends on the market how the market performs.
02:39 So if like over long term mutual funds can give returns up to 12 percent 13 percent even
02:45 up to 15 16 percent.
02:46 But on an average we can say equity mutual funds usually over a long term they have a
02:52 record of giving 12 percent returns.
02:55 But when we talk about FDs or even recurring deposits so they don't give above 10 percent.
03:03 I mean right now they are even you know 7 percent 6 percent.
03:07 These are the FD rates right now depending on how the duration for which you get the
03:11 FD.
03:12 So the question is does one get any tax benefit by making like such investments?
03:16 Yeah that's that's another positive thing about the mutual funds about SIPs.
03:21 While you can invest in a regular mutual fund which does not give you a tax benefit.
03:27 But even in that case what happens is the gains that you get they are taxed at only
03:33 10 percent that too only if they exceed one lakh rupees.
03:36 So capital gains.
03:39 But if you invest in equity linked savings schemes these are also kind of mutual funds
03:44 you also get a tax benefit a tax deduction under section 80 C of the income tax act which
03:50 has a limit of rupees 1.5 lakh.
03:53 So up to 1.5 lakh if you invest in an ELSS scheme through SIP so that you can deduct
03:59 from your income so it won't be taxed.
04:01 So that is a benefit of mutual funds.
04:04 And how safe are such investments?
04:06 Is there any kind of a risk involved in it?
04:09 Can you lose money while investing through SIPs?
04:11 These kind of doubts are people having in their mind.
04:14 So what you would like to say or convey to them?
04:17 See we keep watching these advertisements on TV mutual funds and we keep hearing mutual
04:24 funds are subject to market risk.
04:25 So they are subject to market risks.
04:28 But the thing is if we learn anything from history the performance of the stock market
04:34 over a period of time we see that while there has been volatility but over time it has grown.
04:41 It has grown from you know when Sensex started from 100 points now it is around 37000 points.
04:47 So it has grown over time.
04:48 There can be dips and there can even be falls on the way.
04:53 But in the end the overall growth trajectory is still rising.
04:58 Now what happens is if you invest at a point where the stock market is at a high and if
05:04 you withdraw where market is at a low point then of course it's a bit you know you can
05:10 incur a loss at that particular time.
05:13 But the beauty of mutual funds through investing in mutual funds through SIPs specifically
05:17 SIPs is that when the market is volatile so you kind of you know average your input cost.
05:27 And when we are like about to invest in SIPs or in mutual funds like there is some sort
05:31 of differentiation that if we are if you want to accomplish a short term goals and we have
05:36 to invest in these kind of mutual funds if we want to achieve a long term goals and we
05:40 have to invest in these kind of mutual funds.
05:42 Can you throw light on this thing?
05:44 For short term goals one can invest in you know debt mutual funds because they are comparatively
05:52 more secure more safe.
05:54 You get not exactly a fixed return but the volatility is not that high.
05:58 So for short term goals you can invest in debt funds and for long term goals equity
06:02 funds would be the right bet because markets will give you good returns over the long term.
06:07 So in the end I would like to ask you what are the requirements to start a systematic
06:12 plan?
06:14 In starting a systematic investment plan is very easy.
06:17 All you have to do is you know go to a website of any mutual fund house do your KYC and then
06:23 you can open an account and start an SIP right away just by linking your bank account with
06:28 that particular.
06:29 You just have to get your EKYC done which is very easy to do with Aadhaar nowadays and
06:35 you choose the mutual fund that you want to invest in.
06:38 You can always take the help of your financial advisors or you can just do some research
06:44 and decide which mutual fund you want to invest in and just start an SIP.
06:48 You set a standing instruction how much money you want to be deducted from your account
06:52 every month.
06:53 You set the standing instruction and every month that money will be deducted and it will
06:57 be invested in that particular mutual fund.
07:00 I hope this must have been a very enriching session and we must have saved up all your
07:05 doubts.
07:06 So in the next week we will also coming up with another theme and we will try to remove
07:10 all your doubts about that particular theme.
07:12 Till then you can keep watching Outlook Money and subscribe to Outlook Money.