A micro SIP is a form of mutual fund investment that enables investors to begin with a minimal monthly contribution of either Rs 100 or Rs 50. The aim of micro SIPs is to appeal to small investors, including daily wage earners, students, and children, who may have limited funds to invest. Through consistent contributions over time, investors can take advantage of rupee cost averaging, which reduces the average cost per unit of investment.
Micro Systematic Investment Plans (SIPs) have made it easier for investors to access and invest in mutual funds. Asset Management Companies (AMCs) have introduced micro SIPs in mutual funds to attract an increasing number of investors. By allowing individuals to invest much smaller amounts in mutual funds at regular intervals, these micro SIPs are becoming increasingly popular.
Let us see what micro SIPs mean, why they are beneficial and what SEBI’s regulations regarding this strategy are.
What is meaning of Micro SIPs?
A micro SIP is a type of Systematic Investment Plan that puts a spin on the traditional SIP strategy. In traditional SIPs, the minimum amount that can be invested in mutual funds is Rs. 500. However, micro SIPs make mutual fund investments more affordable by taking the minimum investment amount lower, to Rs. 100. Since the minimum investment allowed is lower, micro SIPs in mutual funds are more affordable
Features of mutual fund micro SIPs
The key features of micro SIP investments include the following characteristics:
- Minimal investment barrier: Micro SIPs offer a low entry point, starting at just ₹100. This accessibility makes them suitable for individuals with limited financial resources.
- Enhanced flexibility: Investors have the freedom to adjust their investment amount and frequency to align with their evolving financial circumstances.
- Portfolio diversification: Micro SIPs facilitate diversification across various mutual fund schemes, mitigating risk and enhancing potential returns.
- Power of compounding: Consistent Micro SIP investments can leverage the compounding effect, leading to substantial wealth accumulation over the long term.
Also read: Different types of investments
SEBI regulations for micro SIPs
The Securities and Exchange Board of India (SEBI) is responsible for regulating mutual funds in India. To make small-ticket investments in mutual funds easier for investors, SEBI has ensured that KYC is not mandatory for micro SIP investments within the threshold of Rs. 50,000 per financial year.
Benefits of investing in mutual funds via micro SIPs
Choosing the micro SIP route to invest in mutual funds can give you many advantages. They include the following:
- Easier diversification: With micro SIPs, you can invest small sums in a mix of different mutual funds without exceeding your investment budget. This makes it possible to diversify your portfolio easily.
- Affordability: Micro SIPs in mutual funds are also more affordable for investors because of the low regular investment amount. This means investors do not need to wait to save up a sizable amount before starting their investments.
- Disciplined investments: SIPs also encourage disciplined investments in different assets. This, in turn, leads to various benefits like the power of compounding and the advantage of rupee cost averaging.
Is a micro SIP suitable for you?
A micro SIP in mutual funds may be the ideal choice for you if:
- You are new to investing and want to start small
- You have a limited budget for investment
- You prefer flexible investment options
- You want to cultivate the habit of saving regularly
- You want to gradually diversify your investment portfolio
- You prefer a simple and straightforward investment process
- You want to benefit from the long-term effects of compounding
How to get started with micro SIPs?
Starting with Micro SIPs is simple and hassle-free, designed to suit even first-time investors. Follow these steps to begin:
- Understand your financial goals: Identify your investment purpose, such as wealth creation, child’s education, or retirement planning.
- Choose the right fund: Research and compare funds offering Micro SIPs. Look for schemes with low minimum investment requirements and consistent performance records.
- Complete KYC registration: Submit your PAN card, Aadhaar, and address proof online or offline to complete the mandatory KYC process.
- Select a platform: Register with a mutual fund provider, a financial institution, or an online platform offering Micro SIP services.
- Set your SIP amount: Decide the amount you can afford to invest monthly, often starting as low as Rs. 100.
- Pick an investment tenure: Choose the SIP duration based on your financial goals and time horizon.
- Automate payments: Link your bank account for auto-debit to ensure timely investments.
Once set up, your Micro SIP works towards accumulating wealth steadily, encouraging disciplined saving habits and mitigating market risks through rupee cost averaging.
Should you invest in Micro SIPs?
Investing in Micro SIPs can be a strategic choice, especially for individuals with limited disposable income or beginners in the investment journey. Here’s why Micro SIPs may be beneficial:
- Low investment barrier: Micro SIPs allow you to start investing with as little as Rs. 100 per month, making them accessible to everyone.
- Disciplined investing: Regular, small investments instil financial discipline and encourage long-term wealth creation.
- Rupee cost averaging: By investing regularly across market fluctuations, Micro SIPs reduce the risk of market volatility, averaging the purchase cost over time.
- Customisable options: You can choose funds based on your risk appetite, investment horizon, and financial goals, ensuring flexibility and control over your portfolio.
However, Micro SIPs may not suit everyone:
- Small corpus: The lower investment amount means it could take longer to accumulate significant wealth.
- Limited fund exposure: Micro SIPs may not provide access to all high-return funds, which sometimes require higher initial contributions.
In conclusion, Micro SIPs are an excellent choice for novice investors or those with limited savings, offering a gateway to mutual funds. They help inculcate financial discipline and create wealth over time, albeit at a slower pace. Evaluate your financial situation and goals to decide if Micro SIPs align with your investment needs.
Things to know before starting a micro SIP
Factors to Consider Before Investing in a Micro SIP
Risk
- Mutual fund investments involve risk.
- Understand the potential risks associated with the investment before proceeding.
Returns
- Mutual fund investments do not guarantee returns.
- Returns are influenced by the performance of underlying securities.
Fund selection
- Carefully select a mutual fund scheme aligned with your investment goals, risk tolerance, and investment horizon.
Charges
- Mutual funds are subject to fees and expenses, such as management fees and expense ratios.
- Understand the associated charges before investing.
Taxation
- Mutual fund investments have tax implications.
- Be aware of the tax treatment of capital gains from mutual funds.
Short-term and long-term capital gains may be subject to different tax rates.
Conclusion
Whether you want to start a regular SIP or a micro SIP in mutual funds, you need to ensure that the mutual fund scheme you choose is suitable for your goals and your risk tolerance. You can do this by choosing to compare mutual funds and narrow down your options before you start SIP investments in suitable schemes.
This becomes much easier on the Bajaj Finserv Mutual Funds Platform, where you can find over 1,000 mutual funds to choose from. No matter which fund you choose, you can start a micro SIP with an amount starting at Rs. 100 and achieve your milestones as planned.
