Can I withdraw SIP anytime?
One common misconception many investors have regarding mutual fund investments is lump sum investments. Many believe that they need to have a considerable sum to begin investing in mutual funds. But in fact, you can start investing in mutual funds with a sum as low as Rs.500 per month through systematic investment plans (SIPs). These long-term investment options can help you create a solid corpus for your financial goals. But how does SIP work? Can you withdraw from your SIP plan anytime? How different is it from lump sum investment plans? Let us find out.
What is SIP?
A Systematic Investment Plan (SIP) is an investment tool offered by mutual fund companies. It is not an investment vehicle but a way to invest in mutual funds. It is a tool for investors to invest in mutual funds in a disciplined manner.
You can choose a mutual fund of your choice to invest a predefined amount of money at predefined intervals.
The biggest advantage here is that the SIP amount can be as low as Rs.500. At the same time, the fixed interval can be monthly, bi-monthly, quarterly, or annually. However, the most common choice is a monthly investment here.
One element that compliments SIP investments is the auto pay facility. With autopay, the SIP amount will be automatically debited from your account and invested in the fund of your choice You can also change the SIP amount or stop it anytime you want.
SIP vs. Lump sum investment
SIP and lump sum are two ways to invest in any investment option. Both options have their own advantages. Let us see how they differ and which one is suited for you.
Through lump sum investments, you invest a considerable amount of money in a mutual fund in one go, whereas SIP investments allow you to invest a smaller amount of money every month. Let us see the differences.
SIP investments and lump sum investments have different goals associated with them. Lump sum investments are made when you already have a corpus to begin investing with. Your investment’s aim here is to either protect the corpus or accelerate the money you already have.
At the same time, SIP investments are designed to create a corpus from scratch. This is usually a long-term investment and can even be for more than a decade.
SIP withdrawal rules
The withdrawal rules of the SIP plan depend on the mutual fund you have invested. Some mutual funds come with a lock-in period. Mutual funds have limitations for withdrawal during this clock-in period. If you have invested in a mutual fund without a lock-in period through SIP, you can withdraw from the SIP investment any time you want.
On the other hand, if you have invested in a mutual fund with a lock-in period, you may not be able to withdraw before the lock-in period ends.
An equity-linked savings scheme is a good example of this. You can invest in ELSS through SIP, and the same has a lock-in period of three years.
But one important thing to understand here is that each SIP investment will have a lock-in period of three years and not the account as a whole. For instance, if you invested Rs.500 in January 2020, only that SIP amount (including the previous instalments) can be withdrawn on January 2023.
Investing through SIP enables the common people to invest in mutual funds. But ensure you choose a mutual fund that works the best for you for the best results.