There are two ways you can invest in a mutual fund. You can either invest a lumpsum amount of money that you have already encompassed, or you can invest monthly or quarterly in a fund of your choice. The former option has one big prerequisite – it needs you to have a considerable corpus, to begin with. The goals of the same would be either to appreciate the capital or to protect the same.
But if you want to create a corpus through smaller instalments in mutual funds, systematic investment plans (SIPs) are your choice. But what happens when the tenure of the SIP ends? Let us learn more about SIP investments through this article.
What is SIP?
A systematic investment plan (SIP) is not an investment vehicle. Rather, it is a tool that helps you invest in a mutual fund. Normally, mutual funds are designed for corpus investments. But if you don’t have a corpus to begin with, or want to create one, you may use SIP. SIP is the tool that helps you invest in mutual funds in regular intervals rather than in one go. It instils a sense of discipline and gives your investment goals a proper plan.
There are three important factors to take care of when you are planning to invest in SIPs.
- First, you should have a clear idea about the fund you are going to invest in. You may consider your risk appetite and investment goals and do your research to find an option that matches best your taste.
- Once you have the fund ready, you may now decide how regularly you want to invest. You may choose to invest monthly, bi-monthly, quarterly, or even annually. But the most common choice here is monthly. As most of us earn monthly income, this makes budgeting easier as well.
- Finally, you have to figure out the investment amount. SIP gives you the option to start investing with an amount as low as Rs.500 per month. But it is important to increase the contribution as and when your income allows for the same.
Another important factor to consider opting for while starting a SIP investment is the autopay feature. The simple setup allows you to invest automatically. The amount will be auto-debited from your bank account on the day of your choice. This helps you keep a disciplined approach to your investment.
What happens when SIP tenure ends?
As said above, SIP is a tool of investment in mutual funds and not an investment vehicle in itself. Hence, the answer depends on the mutual fund that you have chosen. Here, one important thing to understand is that mutual funds, unlike some other options, don’t have a fixed tenure. You start investing when you want to and divest when you want to. Hence, the tenure doesn’t end. Once you stop investing in a mutual fund, the growth may be affected, but nothing happens to the fund. If there is no lock-in period associated with the fund you have chosen, you can immediately withdraw the whole amount as well.
Systematic investment plans are not only a beneficial option but also flexible. You have the option to begin investing whenever you want, tweak the SIP amount or period in between, set up or disable autopay as you wish, and much more. Since the investment is for the longer term, the time you begin investing has less effect as well. These factors make SIPs one of the most flexible investment tools.