Achieve Your Financial Goals with a 1-Year SIP Investment Plan

Systematic Investment Plans (SIPs) can make investing in mutual funds convenient and affordable. SIPs allow individuals to invest a fixed amount regularly into a mutual fund scheme of their choice. Through the power of compounding, even small installments have the potential to build wealth over time. SIPs can help investors potentially navigate market volatilities while also inculcating disciplined investing.

The main advantage of SIPs is that a little contribution can go a long way – investors can start with just Rs 500 a month with the potential to accumulate good returns over time. However, SIP investments can be useful for short-term investments too. If you have a near-term requirement, you can consider an SIP for 1 year.

• Table of contents

1. How to decide your investment horizon?
2. SIP plans from Bajaj Finserv Asset Management Limited
3. Why Choose A 1-Year SIP Plan?
4. Factors to keep in mind while choosing 1 year SIP
5. What are the benefits of SIP investment?

How to decide your investment horizon?

The ideal investment duration depends on several factors, especially your financial goal.

So, if you’re saving money for a distant requirement, such as buying a house, or funding your child’s higher education, you may consider an SIP with a multiple-year horizon.

However, Systematic Investment Plans (SIPs) can come in handy for a near-term goal too – such as an emergency fund or purchase. In such a case, you can choose to start an SIP investment for one year or a little more.

Keep in mind that the type of fund suitable for a long investment horizon and a one-year SIP may be different.

SIP plans from Bajaj Finserv Asset Management Limited

Here are some schemes by Bajaj Finserv Asset Management Limited that have the provision for SIP as well as lumpsum investments:

A DEBT FUNDS

SCHEME NAME	RISK LEVEL	DETAILED SCHEME INFORMATION
Bajaj Finserv Liquid Fund	Low to moderate	Link
Bajaj Finserv Overnight Fund	Low	Link
Bajaj Finserv Money Market Fund	Low to moderate	Link
Bajaj Finserv Banking and PSU Fund	Moderate	Link

B. EQUITY FUNDS

SCHEME NAME	RISK LEVEL	DETAILED SCHEME INFORMATION
Bajaj Finserv Flexi Cap Fund	Very High	Link
Bajaj Finserv Large and Mid Cap Fund	Low	Link

C. HYBRID FUNDS

SCHEME NAME	RISK LEVEL	DETAILED SCHEME INFORMATION
Bajaj Finserv Arbitrage Fund	Low	Link
Bajaj Finserv Balanced Advantage Fund	Very High	Link

Why choose a 1-Year SIP plan?

For those looking to build a substantial corpus, such as for a large purchase or for retirement, a long-term SIP will be required over 5-7 years or more. However, for very near-term goals, investors who do not have a large sum to invest up front or who want to inculcate a disciplined investing habit can consider SIPs too. Here are some reasons:

• Discipline: SIPs encourage regular investments, fostering financial discipline and creating a habit of setting aside money systematically.
• Affordability: An SIP can help you invest in smaller instalments. For instance, you may find it more convenient to invest Rs. 10,000 a month over 12 months than to invest Rs. 1,20,000 at one go.
• Short-term goals: A one-year SIP can be ideal for achieving specific short-term financial objectives, such as funding a vacation, creating an emergency fund or purchasing a gadget. For instance, a Rs. 10,000 monthly SIP in a liquid fund where you expect 6% returns can potentially build a corpus of Rs. 1.24 lakh in a year.

Factors to keep in mind while choosing 1 year SIP:

If SIP is suitable for you:

A lumpsum investment can potentially yield better returns if the markets are performing well, while an SIP can help mitigate risks in a volatile market. A compound interest calculator can help you visualize the potential growth of a one-time lumpsum investment.
So, your risk appetite, the funds at your disposal, and your familiarity with market conditions can help determine whether to choose an SIP.

Instalment amount:

This depends upon your investment goals, horizon, and the funds at your disposal and your financial commitments, among other factors. For a one year SIP based on a specific goal, you would need to estimate your goal amount at the end of 12 months, the potential returns of the scheme you have chosen and then decide your installment size.
An SIP calculator can assist you in the planning process. The calculator helps you estimate the potential size of your final corpus based on your investment amount and tenure. You can change the inputs to arrive at a suitable combination based on you desired corpus size. Do note, however, that the calculator’s estimates are based on your expected returns. Actual returns may vary depending on market conditions.

Type of scheme:

This would depend on your investment horizon, risk appetite and financial requirement. Generally, debt funds tend to be relatively stable in the short term, while equity funds are more suited to long-term investments of three years and above.

Liquidity:

To withdraw your SIP in one year, you must make sure that your scheme is liquid, especially that it does not have a lock-in period during which units cannot be redeemed.

What are the benefits of SIP investment?

SIPs allow you to invest an amount of your choice at a frequency that works for you. Through the power of compounding, even small but regular installments have the potential to build wealth over time.

Additionally, SIP investments can help mitigate risks through rupee cost averaging. When prices are high (as is your scheme NAV), your installment amount (of say Rs 500) will be able to buy fewer units and when NAV is lower, it will purchase more units.

As a result, you end up buying low – which is in line with the traditional market wisdom of buying low and selling high – without having to time the market yourself. Over the long run, this can potentially lower your per-unit purchase price. The key idea of rupee cost averaging is to reduce the impact of short-term market volatility on your investment. For those with a long investment horizon, a step-up SIP can also be a suitable option. This facility allows you to increase your SIP contributions by a fixed percentage at regular intervals. For instance, you can increase your investments by 10% every financial year to align with a salary increment. An SIP top up calculator can help you visualise the potential impact of this incremental approach on your final corpus. Additionally, using a compound interest calculator can help you visualize your investment's growth, thereby improving understanding how compounding works over time.

Read Also: Risks and Benefits of SIP

FAQs

Can I invest in SIP for 1 year?

Yes, you can invest in SIP for a few months, a year, or longer. Some schemes may require you to make a certain minimum number of installments. Whether a 1-year sip is suitable for you or not, however, will depend on multiple factors, including your investment goal and installment amount. Additionally, debt funds are considered more suitable for one-year sip than equity investments, which are typically recommended for longer investment horizons.

What is the minimum investment amount required for SIP plans in India?

The minimum SIP amount depends upon the scheme and can start at Rs. 100 a month.

How can i track the performance of my SIP investments?

The Consolidated Account Statement that is emailed to investors regularly gives them information about their current holdings and all transactions related to their mutual fund investments. The fact sheet issued by the Asset Management Company that runs a particular mutual fund scheme meanwhile, also has details of the scheme, including a comparison of the with respect to its benchmark. You can also find information of how your fund has performed as compared to its peers on the Association of Mutual Funds in India portal and other websites.

Are there tax implications on short-term SIP investments?

Yes, returns earned your investments are subject to capital gains tax. The tax rate depends upon the type of fund and holding period.

• Equity-oriented funds: Units held for less than a year are subject to a short-term capital gains tax of 20%. Units held for more than a year are subject to long-term capital gains tax of 12.5%, with an exemption of up to Rs. 1.25 lakh.
• Debt-oriented funds: Capital gains are taxed as per the investor’s tax slab regardless of the holding period.

Why consider an SIP for a 1-year horizon?

You may consider an SIP (Systematic Investment Plan) for a 1-year horizon if you seek the following:

1. Disciplined approach: SIPs instill financial discipline by encouraging regular and consistent investments, even over a short duration.
2. Affordable investing: While a lumpsum investment may offer higher return potential because the entire investment gets market exposure from the start, an SIP can help invest in smaller instalments. For instance, an investor may find it more comfortable to invest Rs. 10,000 a month over 12 months than to invest Rs. 1,20,000 at one go.
3. Short-term goals: They are ideal for accumulating funds for specific near-term objectives like a planned purchase or emergency buffer.
4. Flexibility: SIPs can be amended, stopped or paused, usually without any penalty. You can also redeem some of your units if you need funds, unlike with most fixed deposits or recurring deposits.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully. This document should not be treated as endorsement of the views/opinions or as investment advice. This document should not be construed as a research report or a recommendation to buy or sell any security. This document is for information purpose only and should not be construed as a promise on minimum returns or safeguard of capital. This document alone is not sufficient and should not be used for the development or implementation of an investment strategy. The recipient should note and understand that the information provided above may not contain all the material aspects relevant for making an investment decision. Investors are advised to consult their own investment advisor before making any investment decision in light of their risk appetite, investment goals and horizon. This information is subject to change without any prior notice.