ONE of the developments in the mutual fund space has been the introduction of micro-SIPs (systematic investment plan). This is a way of investing for individuals and can be used to build a strong portfolio over a period of time.
The question that plagues many people is whether this route is useful for them and how they can actually benefit from the option provided by the mutual funds. Investors need to pay attention to this concept to ensure that they are making use of the alternatives available.
Meaning of term: The term micro SIP refers to a mode of investment into mutual funds. A SIP is a manner of investing whereby the investor puts in a fixed sum of money at a regular interval (usually a specified date each month) into the mutual fund.
This ensures that when the markets and the value of the fund are up the investor gets lower units while when they are down the allotment of units is higher leading to a situation where there is averaging out of the costs in the investment. Under a micro SIP the amount that is invested regularly is extremely low so that this is affordable for a larger number of people.
Minimum amount: The real benefit of the micro SIP comes due to the fact that there is a low minimum amount that is prescribed for the investment.
This means that the investor is able to begin their investment with a sum that is as low as Rs 50 or Rs 100 per month and this provides for the ease of investment because there are a lot of people who do not have large sums to in vest. Such people would want to start out small but they do not have the means to actually complete this requirement under a normal mutual fund offering.
Investors also need to understand some small difference in the minimum amount because in some cases the mutual fund says that the micro SIP amount is low like Rs 10 but this is per day and not per month.
Maximum limit: There is a maximum limit that is usually prescribed by the mutual funds for the micro SIP and this is more likely to be a figure that works on an annual basis. This could mean that a fund determines that a sum of investment that totals less than say Rs 40,000 or Rs 50,000 a year will be considered as a micro SIP .
This is essential because a lot of the investments under micro SIPs target a daily investment which can multiply to a large amount.
This kind of upper restriction also ensures that the daily wage earners as well as rural and semi-urban in vestors are the ones who take advantage of the micro SIP facility.
Usage: The usage of a particular facility has to be seen in the context of the position that investors are in. So the micro SIP is extremely useful for those who are starting out and have a lower amount to commit.
It is also useful for categories of people like students who would learn a lot by investing in this manner. Anyone who wants to ensure that there is a buildup of capital can start off using this option but this might not seem to be useful all the time for a person.
As time passes and the corpus rises the individual might want to ensure that they are investing larger amounts to reach their desired goals.
The individual also has to consider the paperwork and calculation in case they start too many micro SIPs especially if they have larger portfolio.
