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    SIP - Systematic Investment Plan

    A systematic investment plan or SIP is a strategy to invest in mutual funds periodically and in a systematic manner. The SIP investment method is especially handy for people who want to make smaller investments instead of large lump sum investments. This method of making small and regular investments in a mutual fund of your choice make SIPs a robust and efficient way to achieve your financial goals.

    Read on to know more about systematic investment plans, how they work and why you should opt for this invest strategy.

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    Abhishek Chakravarti

    BFSI Writer

    Abhishek is a financial writer with over 6 years of experience in the BFSI sector. Prior to his current stint with Max Life Insurance, he has worked with leading fintech startups. He specializes in writing about taxation and various investment products like ULIPs, retirement plans, guaranteed investment plans, mutual funds etc.

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    Sahil Rawal

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    Sahil Rawal is a digital & brand management specialist with over 10 years of experience in Financial Services Industry. Life insurance professional with expertise in digital marketing strategy, website content marketing and brand communication designed to increase brand awareness, drive engagement & sales.

    What is SIP?

    A systematic investment plan, commonly known as SIP, is an investment strategy where you as an investor can put a fixed amount of money in your preferred mutual fund at regular intervals. It enables you to participate in the stock markets without actually timing them.

    In simple terms, SIP is a smart and hassle-free mode of investment where you can contribute a pre-determined sum on a weekly, monthly, quarterly basis. They are flexible in nature, and thus an investor can choose to increase or decrease the investment amount or even stop investing in SIP whenever they want

    Systematic Investment Plan is one of the effective options available for beginners and for people who do not know much about how the financial market operates.

    How Do SIPs Work?

    A systematic investment plan requires periodic and consistent investments and works pretty much like a recurring deposit. Under a SIP plan, the investment amount is automatically debited from your bank account as per your standing instructions. After that, the corresponding amount of mutual funds is allocated to you. The number of units you receive will depend on the scheme’s current Net Asset Value (NAV).

    NAV of a mutual fund is basically the price you pay per unit of the scheme. To fully understand this, let us look at an example. Suppose that the NAV for a mutual fund is Rs. 10. If you invest Rs. 2000 in this mutual fund, you will receive 200 units of the scheme. With the increase in NAV, your investments will also grow. So, assuming that the NAV rises to Rs. 20 next year, the 200 units you bought for Rs. 2000 would be worth Rs. 4000.

    This way, a systematic investment plan can help you build a significant corpus in the long run.

    Why Should You Invest in SIP Mutual Funds?

    “Save First, Spend Next”—this phrase pretty much summarizes the philosophy of a systematic investment plan. Through SIPs, one can invest small amounts at regular intervals as opposed to a one-time investment. Let us take a look at some of the reasons you should invest in SIPs: -

    · Invest as low as Rs. 500

    Under a systematic investment plan, you can start investing with an amount as low as Rs. 500. With the increase in your income, you can increase your investment amount when you feel the need. Moreover, there is no upper limit for the investment amount.

    · Building on Effect

    A systematic investment plan offers the benefit of building on your investments. This occurs when the returns earned on your investment start earning returns. The returns start to compound on the invested amount over a long-term period.

    · Develops Discipline

    SIPs help develop the habit of discipline among amateur investors as they only need to invest a fixed sum regularly. Moreover, if you opt for the automatic payment option, the money will automatically be debited from your bank account.

    · Rupee Cost Averaging

    Rupee Cost Averaging is a concept where the investor purchases more units when the NAV of the scheme is low and lesser units when the NAV is high. This averages out the purchasing costs over the period of the investment.

    · Convenient Investment Option

    SIPs are a convenient investment options available today. In the hectic life of today’s day and age, one may not get time to do extensive market research and analyze to adjust and balance their investment portfolio. Under a systematic investment plan, you can give standing instruction to the bank to take care of your regular investments.

    · Can Act as an Emergency Fund

    A systematic investment plan lets you withdraw money at any time you like. And these withdrawals, in case of any contingencies, can act as an emergency fund. Moreover, SIPs can create adequate wealth overtime to help fulfil your financial objectives.

    Types of SIPs

    There is a total of four types of systematic investment plans. Let us talk about each of them briefly: -

    · Top-Up SIP

    This type of SIP enables you to increase your investment amount with time. You can make the most of a systematic investment plan by investing in well-performing mutual fund schemes.

    · Perpetual SIP

    Most SIPs are usually offered for a fixed period of 1, 3, or 5 years. But in the case of a perpetual SIP, the end date is not mentioned. Under this type, you can redeem your funds whenever you require. However, it is suggested to set an end date to build a disciplined and goal-based investment.

    · Trigger SIP

    Trigger SIP can be ideal for investors with very little knowledge of the financial markets. This type of SIP allows you to set the NAV, index level, SIP start date, etc.

    · Flexible SIP

    Under flexible SIP, you can increase or decrease your investment amount at your convenience. You can even skip a few payments if you face any financial difficulties. Similarly, you can make higher contributions to your systematic investment plan when you have some extra money at hand.

    Who Should Invest Through SIP?

    If you are a first-time mutual fund investor, you can consider starting your journey by investing through a systematic investment plan. SIPs are ideal for people who have a regular source of income, such as a salary. This way, investors can easily divert a small portion of their income towards mutual funds through a SIP plan.

    SIPs instill financial discipline in the long run as you have to set aside a fixed amount of money at regular intervals.

    SIP or One-Time? Where to Invest?

    First-time investors usually get confused about whether they should go for a systematic investment plan or a one-time investment. In the case of one-time investments, you only need to make a one-time payment of a significant amount of money. On the other hand, you need to invest a fixed amount at regular intervals in a mutual fund scheme.

    One-time investments can be beneficial if you have a large sum of money at hand that can be invested immediately. However, if that is not the case, you should go for SIPs, under which you are only expected to set aside a small amount at regular intervals.

    Here are some of the key differences between a one-time investment and a SIP investment –

    One-Time Investment PlanSystematic Investment Plan
    The investor needs to make a lump-sum payment during the tenureSIP includes periodic investments, where the investor contributes a fixed amount regularly in a scheme of their choice
    In general, a one-time investment generates more investment returns when the market is progressing.SIPs usually bring more return on investment when the market dips.
    It can result in losses at the time of market fluctuations.rupee cost averaging in a systematic investment plan helps deal with the market crash.

    Benefits of Investing in Mutual Funds via SIP

    A systematic investment plan offers a wide variety of benefits to its investors. The most significant advantage of investing in SIPs is that you do not need to time the financial markets, as you benefit from both bullish and bearish market trends

    SIPs help reap sizeable returns by investing a small amount of money regularly. Here are some of the key benefits provided under a systematic investment plan: -

    · Power of Building on

    The compounding in SIPs occurs when your returns start earning returns. In other words, the returns generated by your regular SIP investments gets reinvested in the plan. In the long-term, this can increase your potential returns substantially. The ideal strategy to maximize your gains through a systematic investment plan is to invest for an extended period.

    · Low Initial Investment

    You can invest in mutual funds through a systematic investment plan starting with only Rs. 500 per month. This is an affordable way to invest without putting any stress on your pocket. With the rise in your income, you can increase your investment amount via the SIP step-up feature.

    · Rupee Cost Averaging

    SIP investors do not need to time the financial markets, as they can buy more units when markets perform low and buy fewer when the markets perform high. The averages out the overall investment cost.

    · Higher Returns Than RD

    A systematic investment plan offers about two times the returns when compared to standard Fixed deposits (FDs) and Recurring Deposits (RDs). The SIP plan can generate enough returns to beat inflation efficiently. Moreover, they can help deal with the market fluctuations and offer returns regardless of the market performance.

    · Tax Benefits

    The investment in eligible mutual fund made towards mutual funds through SIPs offers tax benefits up to a maximum of Rs. 1.5 lakh under section 80C of the Income Tax Act of India, 1961.

    How to Customize Your SIP Plan?

    Most investors, especially the salaried ones, prefer the monthly SIP investment plan. SIPs help them directly transfer the investment amount to the fund when they receive their monthly income. However, there are some ways you can customize your systematic investment plan through its types: -

    Frequency of SIP

    You can invest in the mutual funds through SIP on a weekly, fortnightly,quarterly, or half-yearly basis. In case you want to invest for the future without an end date, you can do that as well. You can do this through a Perpetual SIP option.

    Perpetual SIP

    Under perpetual SIP, you can easily transfer a fixed amount to the mutual fund of your choice for as long as you like. This is a good option for the people who need a large corpus to fulfil a significant financial goal in the distant future.

    Step-Up SIP

    The Step-Up SIP allows a step-up or an increase in your SIP investment amount on a regular basis. Let us take up an example to understand this a little better. Imagine you start a SIP with Rs. 2000 per month. You can give standing instructions to your bank to step-up your investment amount. If you plan to step-up by Rs. 1000 per year, you will need to invest Rs. 2000 per month in the first year, Rs. 3000 per month in the second year and so on.

    The two key benefits of stepping up your SIP investments: -

    • You can build a larger corpus during your tenure.
    • You can achieve your financial goal earlier.

    Frequently Asked Questions

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    A SIP investment plan is a simple, safe, and cost-effective way to invest your savings in mutual funds. It is a great investment option if you want to minimize your risks and invest regularly.

    The fact is—there is no ‘best’ time to invest through a systematic investment plan. The important thing to note is that you do not need to time the market or wait for the opportunity to invest in market-linked securities. SIPs make investment simpler and help automate the entire process.

    Yes, you can miss SIP payments. And when you do, your account will not be deactivated. Mutual fund houses offer an option to pause the payments for a specific period. This is a useful feature you can use in case you face any financial difficulties.

    SIP is the safest way to invest as it allows you as an investor to invest fixed amounts regularly. SIPs are a planned approach towards investment and act as a financial cushion by developing a habit of saving.

    You can start investing in SIPs by selecting a fund of your choice. But before that, you need to complete the necessary formalities and provide your KYC details to the Asset Management Company (AMC).

    After completing your SIP term, you can renew your investment. Fill out the required form and state the tenure of investment to extend your SIP duration.

    To shorten your systematic investment plan, contact your house by writing an application to them. You can even put up an online request. Make sure that you have completed the minimum investment period for the request to be considered.

    Most fund houses allow the investors to start investing through SIPs with just Rs. 500. And there is no upper limit for the investment amount.

    A default on SIP installment can be because of insufficient balance in the bank account. Nevertheless, you don’t need to worry if you miss your SIP installment for the month. The default amount will be added to the next month’s installment. However, it is to be noted that a default on SIP installments for 3 consecutive months can lead to termination of SIP.

    The minimum amount to invest in SIP is INR 500. You can start with this amount to generate a significant corpus on maturity.

    If your SIP is nearing maturity and you wish to continue it to generate maximum wealth, you can automatically renew your SIP by sending out a renewal request at least 30 days before the maturity date. It’s advisable to contact your asset manager for detailed process as process varies according to the asset management company.

    ARN NO: PCP/SIP/030423

    Sources:

    [1] www.sebi.gov.in/sebi_data/faqfiles/may-2017/1494501305219.pdf

    [2] www.incometaxindia.gov.in/Pages/tools/deduction-under-section-80c.aspx

    [3] economictimes.indiatimes.com/industry/banking/finance/what-is-sip-types-of-sip-how-it-works/articleshow/77991976.cms

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    The policyholder has a period of 30 days from the date of receipt of the policy document, to review the terms and conditions of the Policy, where if the policyholder disagrees to any of those terms or conditions, he / she has the option to return the Policy stating the reasons for his objections. The policyholder shall be entitled to a refund of the premiums paid, subject only to deduction of a proportionate risk premium for the period of cover and the expenses incurred by the company on medical examination of the lives insured and stamp duty charges.

    ^Individual Death Claim Paid Ratio as per audited financials for FY 2022-2023

    8https://www.moneycontrol.com/news/business/economy/buy-term-insurance-now-as-rates-may-rise-from-april-1-4930921.html

    2Total premium will be charged at the time of the policy issuance (subject to underwriting’s decision).

    3The guaranteed benefits are available with selected life insurance plans & are applicable if all due premiums are paid

    4Tax benefits as per prevailing tax laws, subject to change

    Terms and conditions for availing 5% employee discount:

    <Due to system constraints, employee is requested to select 5 Lakh and above income which can be changed to actual amount on the information page.

    1 The 5% employee discount will be refunded to you once your policy is issued. Submit your documents for getting your policy issued and get 5% employee discount

    9

    The percentage savings is for a regular pay Max Life Smart Secure Plus Plan ( A Non Linked Non Participating Individual Pure Risk Premium Life Insurance Plan, UIN - 104N118V06)– Life Option for 1 cr life cover for a 35 year old, non-smoker male for a policy term of 40 years vs a 10 year policy term with the same details’

    ~*Standard premium for 24-year old healthy male, non-smoker, 25 years policy term,25 year premium payment term (exclusive of GST) for Max Life Smart Secure Plus Plan (UIN:104N118V06)

    **Healthy non-smoking male, 24 years, 2 cr cover,25 years policy term,25 year premium payment term, exclusive pf GST for Max Life Smart Secure Plus Plan (UIN:104N118V06)

    ~~Healthy non-smoking male, 24 years, 1 cr cover,25 years policy term,25 year premium payment term, exclusive pf GST for Max Life Smart Secure Plus Plan (UIN:104N118V06)

    Max Life Smart Wealth Plan| A Non-Linked, Non-Participating, Individual Life Insurance Savings Plan| @Rs.9,68,800/- as lump sum at the end of 15 years, for 35 years old healthy male.

    ARN - ARN/Web/01/21042021

    Past performance of the investment funds do not indicate the future performance of the same. Investors in the Scheme are not being offered any guaranteed / assured returns.The premiums & funds are subject to certain charges related to the fund or to the premium paid.

    The premium shall be adjusted on the due date even if it has been received in advance.

    For Total Installment Premium -**Total Installment Premium is the Premium payable as per premium paying frequency chosen, it excludes GST and applicable taxes, cesses or levies, if any; and includes loadings for modal premiums, Underwriting Extra Premium and Rider Premiums if any.

    For Return of Premium -~The Return of Premium Option is available on payment of Additional Premium. Premium does not include amount paid for riders and is excluding taxes, cesses and levies. Upon Policyholder's selection of Return of Premium variant this product shall be a Non-Linked Non-Participating Individual Life Insurance Savings Plan.

    For Riders -#Applicable Rider available on the payment of Additional Premium is Max Life Critical Illness and Disability Rider | Non-Linked Non-Participating Individual Pure Risk Premium Health Insurance Rider |UIN: 104B033V01 . Critical Illness and Disability Rider variant opted is Platinum Plus which covers 64 critical Illnesses. The rider cover will only be paid in scenarios where customer is diagnosed with listed 64 critical illnesses or total and permanent disability. Rider will terminate after major critical illness claim is paid to the policyholder. In case customer requests for cancellation of rider only, the solution as a whole will be cancelled and not just the individual rider.

    For Additional Benefits -##On Payment of Additional Premium. The accident cover will only be paid in scenarios where death occurs due to accident.

    *~Disclaimer | Max Life Smart Secure Plus Plan. A non-linked non-participating individual pure risk premium life insurance plan |Benefit available with special exit value -Total premium paid inclusive of any extra premium but exclusive of all applicable taxes, cesses or levies & modal extra. The premium calculated as per Standard premium for 30 year old healthy male, non-smoker, 40 years policy term, 40 years premium payment term (exclusive of GST) for Max Life Smart Secure Plus Plan.

    6

    Applicable for Titanium variant of Max Life Smart Fixed-return Digital plan (Premium payment of 5 years and Policy term of 10 years) and a healthy male of 18 years paying Rs. 20,000/- per month (exclusive of all applicable taxes) with 7.50% return. Life Insurance is available with this product.

    ##

    Policy continuance benefit is not available with lifelong wealth variant. **The accrued income will be accumulated on an annual basis at the prevailing reverse repo rate (publish on RBI’s website).

    #

    With “Save the date”, you can choose to take your annual income to any special date in a year.

    ***Available with early wealth variant. Income benefit will be paid as per selected plan terms.

    ~

    Accidental death benefit is available in call variants except for Single premium variant. Life insurance coverage is available in this product.

    #~

    Term Insurance plan bought online directly from Max Life Insurance has no commissions involved.

    ~1

    Max Life Smart Secure Plus Plan, A non-linked non-participating Individual Pure Risk Premium Life Insurance Plan| Standard Premium for 30 year old healthy male, non-smoker, 40 years policy term, 40 year premium payment term (exclusive of GST) for Max Life Smart Secure Plus Plan| ~1 Conditions for special exit value: Option to receive all premiums paid back, at a specified point in the term of the policy (free of cost). Available when Return of premium variant is not chosen. No additional premium to be paid. Option to receive all premiums back (exclusive of GST). Flexibility of exiting the plan early. Special Exit Value cover applicable till age 68 & above (of your age). T&C Apply.

    6

    Applicable for Titanium variant of Max Life Smart Fixed-return Digital plan (Premium payment of 5 years and Policy term of 10 years) and a healthy male of 18 years paying Rs. 20,000/- per month (exclusive of all applicable taxes) with 7.50% return. Life Insurance is available with this product.

    **

    Max Life Critical illness and Disability (UIN- 104B033V01) available as a rider on payment of additional premium. 64 critical illnesses covered in platinum and platinum plus variant on payment.

    *

    Available on Payment of Additional Premium. The accident cover will only be paid in scenarios where death occurs due to accident.

    7

    Available with Max Life Smart Wealth Plan (UIN: 104N116V08)

    8

    Available with Max Life Smart Fixed-return Digital Plan (UIN:104N123V03). The guaranteed benefits are available with selected life insurance plans & are applicable if all due premiums are paid.

    **Disclaimer: Standard premium for 24-year old healthy male, non-smoker, 25 years policy term,25 year premium payment term (exclusive of GST) for Max Life Smart Secure Plus Plan (UIN:104N118V06) with a life cover of Rs. 50 lakh.

    **Disclaimer: Standard premium for 24-year old healthy male, non-smoker, 25 years policy term,25 year premium payment term (exclusive of GST) for Max Life Smart Secure Plus Plan (UIN:104N118V06) with a life cover of Rs. 75 lakh.

    **Disclaimer: Standard premium for 24-year old healthy male, non-smoker, 25 years policy term,25 year premium payment term (exclusive of GST) for Max Life Smart Secure Plus Plan (UIN:104N118V06) with a life cover of Rs. 1.5 Cr.

    **Disclaimer: Standard premium for 24-year old healthy male, non-smoker, 25 years policy term,25 year premium payment term (exclusive of GST) for Max Life Smart Secure Plus Plan (UIN:104N118V06) with a life cover of Rs. 2 Cr.

    **Disclaimer: Standard premium for 24-year old healthy male, non-smoker, 25 years policy term,25 year premium payment term (exclusive of GST) for Max Life Smart Secure Plus Plan (UIN:104N118V06) with a life cover of Rs. 5 Cr.

    **Our Life insurance policies cover COVID-19 life claims under life insurance claims, are subject to applicable terms and conditions of the policy contract and extant regulatory framework.

     

    Disclaimer~*Standard premium for 24-year old healthy female,non-smoker, 25 years policy term, 25 year premium payment term (exclusive of GST) for Max Life Smart Secure Plus Plan (UIN:104N118V06)

    ~^Disclaimer: 15 year return (CAGR – Compound Annualised Growth Rate) from Max Life High Growth Fund (ULIF01311/02/08LIFEHIGHGR104) as on 30/06/2022| 2Nifty Midcap Free Float 100% (5-year return) | For more details on risk factors, terms and conditions and products offered.

    ^~The assumed rates of return (4% p.a. and 8% p.a.) shown in the illustrative example are not guaranteed and they are not the upper or lower limits of what you might get back. The value of your policy depends on a number of factors including future investment performance. The amount shown is for a 30-year-old healthy male, with 10 years premium payment term, and 35 years policy term with Max Life Online Saving Plan (Unit Linked Non Participating Individual Life Insurance Plan | Life Insurance is available in this product).