SIP stands for Systematic Investment Plan. It is a disciplined investment method used primarily in mutual funds, where an investor invests a fixed amount of money at regular intervals (e.g., daily, weekly, monthly or quarterly), rather than investing a lump sum all at once. It allows the investor to buy the units at regular interval without worrying about the market volatility.

Investors buy units of a mutual fund. The fund manager uses this money to invest in various securities. The returns (or losses) are distributed proportionally among the investors based on their unit holdings.

Equity Funds: Invest mainly in stocks. Higher risk, higher return.
Debt Funds: Invest in fixed-income securities like bonds. Lower risk, stable return.
Hybrid Funds: Mix of equity and debt.
ELSS (Equity Linked Savings Scheme): Tax-saving mutual fund under Section 80C.
Liquid Funds: Short-term investments; low risk, lower returns.

No, mutual fund returns are not guaranteed. Returns depend on the market performance of the fund's underlying assets.

Only ELSS funds offer tax deduction up to ₹1.5 lakh under Section 80C. Other mutual funds are taxable based on capital gains.

(a). 📈 Power of Compounding
The earlier you invest; the more time your money gets to grow.
Even small monthly investments can grow into a large corpus over the long term due to compound interest.

Example:
Invest ₹2,000/month at 12% return
For 20 years → ~₹20 lakh
For 30 years → ~₹70 lakh(Just 10 extra years triples your returns!)

(b) Longer Time Horizon = Lower Risk
Early investors ride out market volatility better.
Time smooths out short-term losses and improves average returns.

(c) Lower Monthly Investment Needed
Starting early means you can invest less per month to reach the same goal.
Delaying SIPs requires higher contributions later to catch up.

(d) Disciplined Financial Habit
Early SIPs build regular saving and investing habits.
Promotes long-term thinking and better money management.

(e) Achieve Life Goals Sooner
Helps you plan confidently for long-term goals like:
» Retirement
» Buying a house
» Children’s education or marriage
» Starting a business

(f) Benefit from Rupee Cost Averaging
You don’t have to time the market.
SIPs buy more units when prices are low and fewer when high, averaging out costs over time.

(g) Financial Freedom at an Earlier Age
With enough time, early SIP investors can build a strong financial cushion.
Potential to retire early or live debt-free.

The Asset Management Company (AMC), i.e. the company which manages the mutual fund raises money from the public. The AMC then deploys the money by investing in different financial securities like stocks, bonds etc. The securities are selected keeping in mind the investment objective of the fund. For example, if the investment objective of the fund is capital appreciation, the fund will invest in shares of different companies. If the investment objective of the fund is to generate income, then the fund will invest in fixed income securities that pay interest.

Each investor in a mutual fund owns units of the fund, which represents a portion of the holdings of the mutual fund. On an on-going basis, the fund managers will manage the fund to ensure that the investment objectives are met. For the services the AMCs provide to the investors, they incur expenses and charge a fee to the unit holders. These expenses are charged against proportionately against the assets of the fund and are adjusted in the price of the unit. Mutual funds are bought or sold on the basis of Net Asset Value (NAV). Unlike share prices which changes constantly depending on the activity in the share market, the NAV is determined on a daily basis, computed at the end of the day based on closing price of all the securities that the mutual fund holds in its portfolio.

Units are the building blocks of a mutual fund scheme. A unit represents percentage ownership of the total pool of money managed by the Asset Management Company. Generally, Mutual fund units are priced at Rs 10 at the time of launch (known as New Fund Offer or NFO) of the scheme and its price fluctuates with change in value of the assets of the scheme.

Suppose you have invested Rs 100,000 in a mutual fund. If the price of a unit of the fund is Rs 10, then the mutual fund house will allot you 10,000 units. Let us assume the total money invested in the fund by all the investors is Rs 100 Crores. The mutual fund invests the money to buy equity or fixed income securities. Each unit will represent 0.000001% value of all the securities the mutual fund has in its holdings. If you have 10,000 units, then your portion of the mutual fund holdings will be 0.01%.

As the value of portfolio of securities held by the mutual increases or decreases, so will the price of the units. If the value of assets increases from Rs 100 Crores to Rs 110 Crores, without the issue of new units, the price of the unit will be Rs 11 (0.000001% X 110 Crores). Please note that the percentage ownership represented by unit of the total assets of a scheme will change from time to time as new investors invest in the scheme or existing investors exit (redeem) from the scheme.

Mutual funds are bought or sold on the basis of Net Asset Value (NAV). NAV is essentially the price of a unit. NAV is calculated by dividing the net assets (market value of the securities and cash held by the fund minus the liabilities) of the fund by the total number of units outstanding. Unlike share prices which changes constantly during the day depending on the activity in the share market, the NAV is determined on a daily basis, computed at the end of the day based on closing price of all the securities that the mutual fund owns after making appropriate adjustments.

Contrary to popular misconception, schemes with high NAVs are not overpriced and funds with low NAVs are not attractively priced. Older the fund higher will be the NAV over a period of time. Low or high, the NAV by itself does not impact the return on investment from the mutual fund. The percentage change in a fund's NAV over a period of time denotes the percentage returns on investment of all the unit holders of the fund over the same period.

AMCs may charge a fee if you redeem (sell) your units within a specified period from the date of investment. This fee is known as exit load. Let us understand exit load with the help of an example. Suppose, you invested Rs 1 lakh in a scheme whose NAV was Rs 20; in other words, you bought 5,000 units of the scheme. Let us assume that, the exit load is 1% for redemptions within 12 months from the date of purchase. Suppose after 8 months, the NAV of the scheme is Rs 23. The value of the 5,000 units will be Rs 1.15 lakhs. However, if you redeem (sell) all your units after 8 months, you will not get a credit of Rs 1.15 lakhs to the bank because exit load will apply. Exit load per unit will be 23 paise (1% X 23) and total exit load will be Rs 1,150. This amount will be deducted from your redemption proceeds and only Rs 1,13,850 will be credited to your bank account. Investors should note that, exit load does not just apply for redemptions; they are also applicable for switches, Systematic Transfer Plans (STP) and Systematic Withdrawal Plans (SWP), as long as those transactions take place, within the exit load period.

Unit Linked Insurance Plans (ULIPs) are combined life insurance cum investment products. Unlike traditional insurance plans e.g. endowment, money back plans, pension plans etc, ULIPs are market-linked and have the potential to deliver higher returns compared to traditional plans. However, ULIPs, unlike traditional life insurance plans, do not offer capital safety. ULIPs provide investors with life insurance cover and at the same time investment in a fund of their choice.

Mutual fund, on the other hand, is a purely market linked instrument, which pools the money of different people and invests them in different financial securities like stocks, bonds etc. Each investor in a mutual fund owns units of the fund, which represents a portion of the holdings of the mutual fund.

One can think of ULIP as a mutual fund with a term life insurance plan attached to it. In terms of gross investment returns ULIPs have performed comparably with mutual funds over a 5 year period. However, net returns to investors are lower in ULIP because various costs are deducted from ULIP premiums before they are invested in the ULIP fund. A portion of the ULIP premium goes towards buying the life cover or sum assured. Another portion goes towards a variety of fees like, premium allocation fees, policy administration fees, fund management etc. The balance premium is then invested in the ULIP fund.

Financial planning is no different from a structured problem solving framework. Every structured business problem solving exercises has specific steps (the same can be applied in financial planning as well). However, there are broadly 6 steps in the financial planning process. Most certified financial planners (CFPs) and financial advisers will be very familiar with these steps. However, investors should understand that, while financial planners or CFPs can play an important role in the financial planning process, the success of the financial plan ultimately depends on the investor. Therefore, it will be useful for investors to familiarize themselves with the process, so that they can work efficiently and effectively with their financial planners or advisers.

Step - 1: Understanding and defining the life goals
The first step of financial planning process is to understand and define your specific goals. The more specific the goals are the better it is. Sometimes, you may not have enough clarity about all the financial goals in your life. An expert financial planner can help you define the goals across your savings and investment lifecycle and determine the specific numbers you need to reach for each of the specific goals. You should remember that a financial plan is not working towards a singular goal, like retirement planning, Children’s education or marriage or buying a home etc.

A financial plan includes multiple goals across your savings and investment lifecycle. However, you should establish definite time frames for achievement of each of these goals. Even though, ideally, we would like to achieve or even exceed all our financial goals, it is useful to prioritize the goals, especially if there are constraints with regards to how much you can invest and save. For example, you may prioritize your child’s higher education over buying a house or some other financial goals. The financial planner will take your priority into consideration, when developing your financial plan. Once the financial goals and the priorities are determined, the financial planner or adviser will examine these goals in respect to your resources and other constraints, if any. The objective of this step is to help you define specific, realistic, actionable financial goals.

Step - 2: Collecting and consolidating data through personal meeting
The second step in the financial planning process is to collect the data regarding the your income, expenses, existing fixed and financial assets, life and health insurance, lifestyle & other important expenses, your family structure and other liabilities that will form the inputs in your financial plan. The Financial planner may employ different methods to collect the data from you. Some financial planners or advisers may send you a survey form or questionnaire that you will have to filled out and send back to the financial planner.

Many financial planners prefer face to face meetings with their clients to collect this data. Face to face meetings is often more effective than just sending a survey form or questionnaire. Through a face to face interaction, the financial planner or adviser can clarify certain details about you that the questionnaire may not be able to. A personal meeting also helps the investors clarify doubts, expectations or share additional details with their financial planners or advisers. We recommend that, you should have a face to face meeting, even if your financial planner does not ask for one. It is always helpful for you.

Whatever the method is for interaction and data gathering, it is always beneficial for you to share as much information as possible with your financial planner. Withholding financial or other important information from him is never useful. You should remember that the role of the financial planner or adviser is very much like a family physician. Just like, we should share all medical and health related information with our family physician, we should share all our financial information or any other information that may potentially have an impact on our financial situation with our financial planner

Step - 3: Detailed analysis and suggestions
The third step of the financial planning process is the data analysis part. The financial planner will review your financial situation - assets & liabilities, current cash flow statements, debt or loan situation, existing insurance policies (both life and non-life insurance), exiting savings & investments and other legal documents (if required). Through a structured financial analysis process, the financial planner will determine your asset allocation strategy and insurance (life and health/ critical illness) needs to meet your financial objectives. The financial planner may also suggest additional life and health insurance, if he or she determines, based on your financial analysis, that you are not adequately insured.

What is your responsibility at this stage? While all the work in this step is done by the financial planner, as an investor, you should also involve yourself in this process by scheduling review of the plan and making sure that you understand the analysis. After all, it is your financial plan!

Step - 4: Asset allocation strategies and investment recommendations
After the above 3 steps are covered, your financial planner will make the actual recommendation with respect to your comprehensive financial plan. This will include your asset allocation strategy based on your risk profile, alternate investment options like, mutual funds, equities, traditional debts, tax saving strategies, life and non-life insurance requirements etc. Your financial planner should schedule a meeting with you, to discuss these recommendations. This is a very important step in the whole process as you should make sure that you understand all the recommendations he or she has made and the reasons thereof.

At this stage, you should ask him/ her as many questions as you would like to, regarding each strategy or product investment recommendations, because they will be crucial in meeting your financial objectives. You should note that the final investment decisions rest with you, and therefore you should ensure that you are comfortable with the financial plan drawn and its execution strategy. Recommendations can change during this step and altered based on your inputs to the financial planner.

Step - 5: Filing up the necessary investment forms and understanding terms & conditions
The penultimate step of the financial planning process is the implementation of the investor’s financial plan. This involves the actual process of purchasing the investment and insurance or other products. At this stage various regulatory and procedural requirements need to be fulfilled, depending on the each product involved. As an investor, you may have to submit the documentation for Know Your Client (KYC), fill up the application forms for mutual funds, opening of Demat and share trading accounts for equity investing, and finalising proposal forms for life and non-life insurance plans.

Your financial adviser will play a big role in fulfilling these requirements, including collecting the documents for KYC and helping you in filling out the application or proposal forms. However, it is important, that you remain involved in the entire process. Even if you delegate the responsibility of filling the major portions application or proposal forms to him, make sure you verify the information in the forms post t is filled up, to ensure nothing is incorrectly stated. You should also carefully read the brochures/ scheme information documents of the products that you are investing in, so that you understand all the terms and conditions of the product(s).

Step - 6: Track investments and review the financial plan regularly
The final step of the financial planning process is to monitor and tracking the progress made on your financial plan. You should review your financial plan in order to evaluate the effect of changes in your income levels, your financial situation, tax obligations, new tax rules, new products and changes in market conditions. Normally, your financial planner should schedule meetings with you at a regular frequency (once every 6 month or 12 months) to review your portfolio and discuss if any change needs to be made in your financial plan, asset allocation strategies and investments.

But even if your financial planner does not schedule regular review meetings, you should insist on meeting with him/ her at some regular frequency, e.g. Semi-annually or annually etc. At the end of the day, it is your financial plan and your financial future is at stake. Therefore, the onus is really on you, to make sure that your financial plan is on track. Also, you should remember that financial planning is not a static, but a dynamic exercise. Your financial situation, goals and aspirations may change over a period of time. Therefore, you should meet with your financial planner or adviser on a regular basis, to ensure that your portfolio is doing well and at the same time, ensure that any change to your financial situation, goals or aspirations is appropriately reflected in your financial plan, and executed upon.

There are many benefits of having a financial plan. Once you have defined the specific goals and save or invest for it, you actually start a journey which helps you reach your financial goals. A financial plan actually helps you lead a disciplined and stress free life so that you can enjoy the life to the fullest. We will now discuss the various benefits of having a financial Plan.

The first step of financial planning is to define specific goals. The more specific the goals are the better. As an investor, especially if you are young, you may not have enough clarity about all the financial goals in your life. This is where an expert financial planner helps you. Through a financial planning process, the biggest benefit is that you can define the goals across your savings and investment lifecycle and save towards it for achieving the different life goals. Investing or saving without knowing the goals is like embarking on a journey without knowing the destination.

How you invest your save (debt or equity or real estate), plays a very important role in ensuring the success of your goals. Different asset classes have different risk return characteristics. Too much risk can result in loss of money, while too little risk may prevent you from meeting your long term financial objectives. While drawing your financial plan the emphasis is on Asset allocation which is the process of balancing your risk and return objectives.
It is one of the most important aspects of financial planning. You can reap rich benefits if you just follow the provided guidance on asset allocation in your financial plan. Asset allocation is the only sure shot way for you to meet your short term, medium term and long term financial objectives.

If you start your financial planning early in your working careers it will give you a head start in meeting your financial objectives even earlier. Saving and investment is not the most important priority for many young professionals. While lifestyle is an important consideration for many young people, you should be careful to not build a liability in your personal balance sheet. Economic lessons learnt from the west over the past 2 decades have taught us that we can easily get into debt trap without even realizing. Young people should think long term, because a small amount of money saved now can create wealth for you in the future.

The benefit of having a financial plan earlier in your work career will put your savings and investment on autopilot mode, with minimal impact on your lifestyle. You will realize the benefits of early financial planning, when you approach important life goals, like buying your house, funding your children’s higher education, your own retirement etc. Early start can also help you buy adequate life and health insurance at much lower premium as the premiums rise rapidly as your age increases.