What Is Micro SIP In Mutual Fund?

Micros and macros are not just nutrition terms. They apply to the world of finance, too. Simply put, micro refers to small-scale, while macro relates to the bigger picture. In the context of investing, micro investments let you start with small amounts. Did you know that mutual fund houses now offer something called a Micro SIP? It is a way to invest in mutual funds with very small quantities.

What is a Micro SIP?

Short for a Systematic Investment Plan, an SIP allows you to invest in mutual funds through regular instalments at a fixed frequency, such as monthly, quarterly, or even weekly. A Micro SIP is simply an SIP with a much lower minimum investment amount. It can start as low as Rs 100.

A Micro SIP in mutual funds makes investing accessible to more people, particularly those starting young, students, and individuals with low incomes.

How is a Micro SIP different from regular SIP?

A regular SIP typically starts at a minimum of Rs 500, but it can go much higher depending on how much you want to invest. It can be used by both new and experienced investors, as well as individuals with higher incomes.

In contrast, a Micro SIP allows investments as low as Rs 100, which makes it more accessible to beginners or those with a low income. It is designed for anybody who wants to start small and gradually grow their portfolio.

Pros of Micro SIPs

Here are some advantages of using Micro SIPs:

• Micro investing made easy: You can start investing with as little as Rs 100 per month. A low entry point makes mutual fund investing accessible to more people. If you have been hesitant to invest due to a lack of funds, this can be a good way to begin.
• Promotes investment discipline: Micro SIPs encourage regular investing, which can help you build the habit of consistent savings, even with small amounts.
• Simpler documentation process: When selecting Micro SIPs, you are not required to submit your Permanent Account Number (PAN) Card or complete the Know Your Client (KYC) documentation requirements. All you need to provide is a copy of a government-issued photo ID, such as an Aadhaar Card, driving licence, or other similar documents.
• Diversified portfolio exposure: Even with a small investment, Micro SIPs allow you to invest in a range of mutual funds. These mutual funds may offer exposure to different stocks and other asset classes. This helps you invest in diversified instruments without needing a large capital outlay.

Considerations when opting for Micro SIPs

Here are some things you must consider when opting for a Micro SIP:

• Susceptibility to market fluctuations: Just like regular SIPs, Micro SIPs are investments made in mutual funds. Hence, they can be subject to market ups and downs. Even if you are investing small amounts, it is important to understand that there is still a risk element involved.
• Step up your SIP over time: While Micro SIPs offer a low entry point, it is wise to increase your investment as your income grows gradually. This may help you accumulate wealth faster and reach your financial goals more efficiently.
• Careful fund selection: Even with small investments, choosing the right fund is crucial. Your selected mutual fund should align with your investment horizon, goals, and risk tolerance. Research thoroughly and, instead of just going for the first option, take the time to evaluate your needs and suitable options.

Who should invest in Micro SIPs?

The following people can consider a Micro SIP:

• First-time investors: Those new to investing can use Micro SIPs to ease into mutual funds. It is a good way to understand how markets work before they get into a higher investment.
• Students: Students who may be earning a limited or part-time income can take advantage of the low minimum investment of Micro SIPs. With just Rs 100, they can potentially begin building wealth early in life.
• Freelancers: Freelancers may have irregular incomes. Micro SIPs allow them to continue investing even during the months they may not earn a lot of money.
• Homemakers: Homemakers who may not have a regular source of income can also benefit from Micro SIPs. Even small monthly contributions of Rs 100 can help potentially create wealth.   
• Regular investors exploring new options: Even seasoned investors can use Micro SIPs to test out a new fund or investment strategy before increasing their investments.

Conclusion        

Micro SIPs can help you start your investment journey if you are new to the world of mutual funds. With a low entry point, they are accessible to a broader investor audience, including students, homemakers, freelancers, first-timers, and others. However, it is important to remember that Micro SIPs are still subject to market risks like any other mutual fund investment. So, research well, understand the fund's objectives, and ensure it aligns with your financial goals before you start.  

An investor education initiative by Edelweiss Mutual Fund

All Mutual Fund Investors have to go through a one-time KYC process. Investors should deal only with Registered Mutual Fund (RMF). For more info on KYC, RMF and procedure to lodge/redress any complaints, visit - https://www.edelweissmf.com/kyc-norms  

MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS. READ ALL SCHEME-RELATED DOCUMENTS CAREFULLY