Demystifying Systematic Investment Plans (SIPs): A Beginner's Guide to Long-Term Investing

A Systematic Investment Plan (SIP) is a scheme under open-ended mutual funds, in which investors make regular and equal payments into a mutual fund. SIP is one of the best investment tools that can be very profitable in the long run. It is simply a scheme where the fund collects money from the general public and invests it in different investment tools.

An open-ended mutual fund does not have a time limit or fund limit. It can increase the units as much as necessary (when investors trust them). It does not have any maturity period. So, investing in mutual funds is very good for long-term investing. In this, the money collected from the general public is invested in the share market, debentures, and bank FD by professional investors who are regulating the Fund.

These schemes are worthy for those who do not have enough time to evaluate the market or those who do not have proper ideas or knowledge on how to invest in the share market. 

A Demat account is compulsory for registering in SIP. This means that if you don't have a Demat account, you should first open one with any authorized capital. If you already have a Demat account, you can use the same account to register for SIP schemes.

 There are currently 4 open-ended mutual funds in Nepal:

1) NIBL Sahabhagita Fund

2) NIC Asia Dynamic Debt Fund

3) Siddhartha Systematic Investment Plan

4) NMB Saral Bachat Fund-E

5) Subha Laxmi Kosh

6) Nabil Flexi Cap Fund

 Out of 6 open-ended mutual funds in Nepal, all of them have SIP schemes in them. 

Advantages of SIP: 

1. It cultivates a savings habit: SIP encourages the development of a disciplined approach to saving and investing. By committing to regular contributions, typically on a monthly basis, individuals establish a habit of allocating a portion of their income towards investment goals. This promotes financial discipline and facilitates the gradual accumulation of a savings corpus over time.

2. Eliminates concerns about the stock market: With SIP, individuals can delegate the responsibility of timing the market to professional fund managers. These experts make investment decisions based on their market knowledge and analysis, alleviating the need for investors to monitor and predict market movements. As a result, individuals can experience a sense of relief from the inherent uncertainties associated with investing in the stock market.

3. Harnesses the power of dollar cost averaging: SIP enables investors to contribute a fixed amount at regular intervals, regardless of market conditions. This strategy capitalizes on market volatility by purchasing more units when prices are low and fewer units when prices are high. Over time, this approach helps to average out the cost per unit, potentially minimizing the impact of short-term market fluctuations.

4. Provides long-term investment returns: SIP is designed as a long-term investment vehicle with the objective of generating wealth over an extended period. Through consistent and sustained investments over several years, investors can benefit from the compounding effect. Compounding entails reinvesting returns, which can lead to an exponential growth of the investment over the long run.

5. Offers flexibility without penalties: SIPs typically provide flexibility in terms of investment amounts and allow investors to pause or modify their contributions when necessary. Unlike certain other investment options, SIPs generally do not impose fees or fines for missed payments or failure to invest a specific amount. This feature enhances convenience and adaptability within the investment process.

How to get involved in the SIP scheme?

These days, you can also get registered in SIP scheme online.

1) NIBL Sahabhagita Fund:  https://mutualfund.niblcapital.com/Modules/MainPage/SIPRegistration.aspx

2) Siddhartha Systematic Investment Plan  https://mutualfund.siddharthacapital.com/Modules/MainPage/SIPRegistration.aspx

3) NMB Saral Bachat Fund- E https://mutualfund.nmbcl.com.np:8445/Modules/MainPage/Login.aspx

You can also find links to SIP schemes and other investment options on their respective websites. The user interface remains consistent across all platforms.

Once you are registered under a SIP scheme, you will make regular interval payments to the capital or fund manager. In return, the units of the mutual fund scheme will be automatically deposited into your Demat account.

It's important to note that these funds, like other closed-ended mutual funds, are not traded on the Nepal Stock Exchange. Therefore, investors must directly buy or sell units through the fund manager of the respective schemes. 

Authored by Sanjok Thapa | Edited by Aashish Chaudhary

Interested in Sanjok Thapa's past contributions? Access his previous work here: 

Investing Like Peter Lynch: Valuable Insights from a Legendary Investor

How to Invest in Stock Market for Beginners