Automatic Investment Plans(AIP) - Investing in Mutual Fund

While everyone understands the value of investing, many people don't have the financial discipline to save enough money to invest for the future. As a result, many begin their investment journey quite late in life, which may culminate in inadequate savings or low retirement corpus.However, automatic investment plans provide an excellent opportunity to begin investing even if you don’t have enough savings. Moreover, such plans allow you to start investing in the stock market with a nominal amount and gradually build your portfolio in the long run.

In India, automatic investment plans are commonly known as SIPs ( Systematic Investment Plans ).An automatic investment plan is a method of investing in amutual fund. A pre-defined amount of money, usually in small quantities, is automatically debited from the investor’s bank account at regular intervals and invested in the mutual fund. The investor can choose the frequency of investing, which can be monthly or quarterly.For example, suppose you purchased a mutual fund with a monthly SIP of Rs 1000 with the 5thof the month set as an investment date. Once the SIP is activated, Rs 1000 would be automatically debited from your account on the fifth of every month and would be invested in a mutual fund of your choice. You will get equivalent units of the fund based on the NAV (Net Asset Value) of the fund on the day of purchase (which is the 5thof every month in your case).

You can start your automatic investment plan in either online or offline mode.

1. Visit the official website of your mutual fund house.
2. Select the Login Page.
3. Provide your PAN and upload other official documents during the registration process.
4. Select the mutual fund you want to invest in.
5. Select SIP as investment type.
6. Fill up the bank account details from where you want to make the investment contributions.
7. Sett auto-debit instructions in your net banking account.

1. Visit any branch office of your preferred mutual fund house.
2. Fill up the application form with details like SIP amount, mutual fund scheme, SIP intervals, total time of investment, etc.
3. You can mandate auto-debit of the investment amount from your bank through post-dated cheques or set auto-debit instructions through the net-banking facility.

• Online Investing You would require a net banking account to use the online mode.
• Offline Investing If you are not comfortable with digital banking, you can use the offline mode of investing.

Once the SIP is set, the SIP amount will be automatically transferred on a fixed date every month from your bank account to your investment plan. The amount will be used to purchase corresponding units of your mutual fund at the prevailing market rate.

• Inculcates Financial Discipline One of the primary advantages of an automatic investment plan is that it instils financial discipline in investors, especially the new ones. The plan pushes you to make strict budgetary provisions for the SIP amount before going on an unnecessary spending spree.
• Trains Control Over Emotions Many people lack the necessary self-control to refrain from indiscriminate buying and selling stocks. Such people often make wrong financial decisions like selling good-quality stocks at a loss in a market crash.Automatic investment plans help you to have more control over your emotions as you don’t directly trade in stocks and let your mutual fund take such decisions for you. You will be saved from anxiety by not tracking the daily market indices.
• Lowers the Overall Investment Costs SIPs invest the same amount of money to buy the same stocks regularly. This reduces your overall investment cost to purchase those stocks. This investment principle is known as rupee cost averaging and can be understood by the following example.Consider a stock ABC trading at Rs 100 in January, 50 in February, and 200 in March.Now consider that your fund bought Rs 1000 worth of ABC shares every month. Therefore, you got ten shares in January, twenty in February, and five in March.On adding your investments, your average buying cost comes around Rs 85.71 per share because your fund bought more of the stock when it was trading at a low price and lesser when it was trading at a higher price.
• Removes the Need for Manual Transfer Automating investing removes the need to manually move the funds every time you need to invest. Instead, you set the fund transfer instructions once and let your investments run on auto-pilot mode.

• Possibility of Missing Investment Opportunities Sometimes the stock prices of great companies are available at a discount due to a sudden market crash. This brings an excellent opportunity to invest a lump sum to buy stocks at a discounted price.SIP investors might miss out on such investment opportunities if they only rely on the automatic investment strategy.
• Investor Might Get Reluctant Automated investing can work better if you regularly review your portfolio, such as increasing your SIP amount as you get a raise so that the corpus accumulation speeds up.However, people often get reluctant to revisit their portfolios after starting the SIP.
• Insufficient Fund in Bank Account Automatic investment plans require your bank account to possess enough funds on the SIP date to effect the debit of the necessary amount. Therefore, your SIP will not flawlessly execute if you have an insufficient balance in your bank account.

Automatic investment plans are one of the best ways for beginners to kick-start their investment journey. They are managed by professional fund managers and have the potential to generate long-term wealth. You can consider beginning your SIP from a modest sum and gradually increasing the amount as your earnings grow.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.