FINANCE TIP OF THE DAY
Can you afford your loan?!
Know the quantity of loan you can afford. The banks may sanction loan based on your income but you should look at your monthly expenditure and see if you can afford the maximum that banks offer. As a thumb rule, remember not to let your credit exceed 40% of your income!
Renewal of SIP – Why, when and how?
Given the volatility of financial markets all over the globe, SIPs have now become the preferred means of investment for the common investor who does not have the adequate risk appetite. Opting for SIP would mean investing regularly over a period of time. The time frames for investment is fixed at time of taking the plan. As the term of payment for a SIP approaches the most common question that arises in the mind of the investor is whether to renew it or discontinue. Here are few guidelines that will help you decide.
Why renew a SIP?
The most important benefit that a SIP offers is the fact that during the time of renewal, an investor can change the amount as well as duration of the plan. In order to meet other financial commitments, as the investor you may need to renew the plan in order to change the amount and duration. By the end of 1 year or 6 months, based on your cash flow situation you can renew your SIP according to your needs.
Additionally with time the particular scheme you have opted for may start performing poorly according to market conditions. To keep track of your investment growth it is critical for you to review your plan on a periodic basis to assure steady returns.
When to renew a SIP?
The golden rule of investment says, one should invest when the rates are low and sell when the rates are high. An investor invests an equal amount of money each month in the SIP whose net asset value varies with the rise and fall of prices. During the course of time when prices are low, net asset value falls which directly generates more units of fund for the investor. Likewise, when there is a rise in prices, you get double returns. One is the return you get on accumulating more number of units and the other is the return fetched on earlier units acquired when prices fall. This mode of investment is thus independent of timing the market and hence ensures a well-planned investment.
One should renew an existing SIP anytime during the course of the term or when it ends as long as the investor is capable of making regular monthly investments. Irrespective of the volatility of the market, one must continue investing for a long term, more specifically when the market is experiencing a downturn. This will definitely ensure huge rewards in the long run. If you have a good investing time zone, say greater than 5 years at least, the SIP plan can be truly rewarding irrespective of when you started and when you ended.
How to renew an existing SIP?
Renewal of SIP to maintain a regular schedule of savings is an easy and simple affair. Normally, when approaching the term end, the investors start getting reminders of renewal from asset management firms. Depending upon the returns of the particular scheme you can decide whether to opt for the renewal of your SIP. To ensure a regular flow of investment, the investor will need to send a renewal request at least 30 days in advance. In case the existing SIP has expired, one can still renew it by quoting the same folio number through a financial advisor of his AMC. Usually it takes about 21-30 working days from the date of sending a request form for the renewal to take effect. The same will be notified to the investor through e-mail as well as by snail mail.
Points to remember
As discussed above, SIP is the easiest and best mode of investment for most investors. However, look out for the things listed below while renewing your existing SIP.
Whether you are an offline investor or online investor, the folio number of your SIP will not change while renewal.
While renewing, you can change all the necessary information related to your SIP. This includes date, amount as well as duration. The changes will be directly dependent on the fund performance over the SIP term.
Although your asset management company will send you a notification mail about the end of your SIP term along with your SIP renewal form, you can always download it from the official website of the company.
The respective folio number of your SIP should be KYC or Know your customer compliant.
Systematic investment plan is a very good mode of investment for an investor to retrieve good returns by the end of the term. It is also pocket friendly and there is scope for better returns. It can be favoured as an organized and systematic approach to save your money for future needs.