Investing in mutual funds through an SIP is a great way to build wealth. You make regular contributions to a fund of your choice, stay disciplined, and in time, the magic of compounding helps you create wealth. But did you know there are different ways you can go about investing through SIPs? You can choose a regular plan and get expert guidance from a qualified advisor or mutual fund distributor, or you can go directly to the AMC via an AMC SIP meaning bypassing any intermediaries in the way.
Both options invest in the same fund, managed by the same fund manager, but there are some key differences between AMC SIP vs Normal SIP that can affect how you invest.
What is AMC SIP in Mutual Funds?
Before we get into what is AMC SIP, let’s first understand these terms individually. AMC stands for Asset Management Company. These are the companies that offer and manage mutual funds, for example, ICICI Prudential Mutual Fund or HDFC Mutual Fund. SIP stands for Systematic Investment Plan, which is an investment mode that allows you to regularly invest a fixed amount in a mutual fund. SIPs can be of various types based on factors like frequency of investment, customisations, and third-party involvement.
There are many ways you can start an SIP. You can use one of the many mobile investment platforms, connect with a mutual funds distributor or broker, or even invest directly through the website or app of the AMC. This last option eliminates all intermediaries and allows you to invest in direct plans of mutual funds. Thus AMC SIP meaning can be understood as a type of SIP that you set up directly with an AMC.
How Does AMC SIP Work?
When you register with the AMC and invest directly, you remove the presence of any third party and avoid paying brokerage fees or commissions. In the long run, this lower fee translates to potentially much higher returns as it gets invested and compounded. But the caveat here is that investing directly requires more effort, knowledge, and involvement from your end as you’ll need to research and select the mutual fund schemes on your own.
If you decide to invest in multiple SIPs across different AMCs, you’ll need to make separate accounts with each AMC, complete KYC again, and manage each SIP through the respective portal.
Benefits of AMC SIP
1. Diversification
A mutual fund portfolio consists of a variety of assets. For example, an equity mutual fund may contain 40 to 50 different stocks across different sectors and industries. This process is called diversifying the portfolio, which means spreading investments to reduce risk. Now even if one or two stocks in the basket perform poorly, the damage can be offset by the better performance of other stocks, which ultimately reduces the impact of market volatility on the portfolio.
2. Professional Management
Mutual fund portfolios are managed by qualified professional fund managers who have years of experience in the industry. They work with a team of expert analysts and market researchers who advise the manager on individual stocks, market trends, and economic conditions.
3. Rupee Cost Averaging
This benefit is unique to SIPs. When you invest in a mutual fund, it means you’re buying the fund’s units. Each unit comes with a Net Asset Value, which is basically the price per unit of the mutual fund on a given day. The NAV fluctuates on a daily basis depending on the performance of the underlying assets in the fund’s portfolio.
SIP investments don’t account for NAV. You simply invest a fixed amount at regular intervals, regardless of the NAV on the predetermined date of the investment. On days when the NAV is high, your fixed amount buys fewer units, but when the NAV is low, it buys more units for the same amount. This process is known as rupee cost averaging, as it is averaging the overall cost of your investment.
4. Accessibility and Convenience
One of the major Benefits of AMC SIP is the low entry barrier for investors. The two ways you can invest in mutual funds are through lump sum or SIP. The lump sum mode requires you to invest a large amount in one go, whereas an SIP allows you to invest in small amounts. This affordability makes SIPs the go-to choice for a wider investor base. Most AMCs also have mobile apps, which makes setting up an AMC SIP easy and hassle-free.
5. Discipline
Investing regularly helps you build up a habit of saving and investing which is essential for achieving long-term financial goals.
6. Lower Costs
Investing in regular SIPs comes with higher expense ratios, which include brokerage or distribution charges. Investing with the AMC directly, on the other hand, helps you avoid the intermediaries, consequently lowering your expense ratio and increasing your returns.
Key Differences Between AMC SIP and Regular SIP
Check out the table to understand how AMC SIP vs SIP differ from one another:
| Factor | AMC SIP | Regular SIP |
| Meaning | A type of SIP which allows investors to invest directly in a mutual fund through the AMC’s website or app. | A type of SIP in which individuals invest through an intermediary, like a financial advisor, mutual fund distributor, or a mobile platform. |
| Expense Ratio | The expense ratio is lower as it does not include commissions paid to distributors or agents. | Higher expense ratio because regular plans include fees paid to their parties. |
| Types of Plans Available | One can only invest in direct plans through an AMC SIP. | Plans can be regular or direct (In the case of mobile platforms, however they do charge platform fees) |
| Interaction | Investors interact directly with the AMC. | Investors interact with brokers, distributors, or platforms who in turn interact with the AMC. |
| Control | Investors have full control. | Investors may have to share control with agents and distributors. |
| Convenience | If an investor has multiple SIPs going across different AMC, managing them can be hard as each AMC has its own platform, login details, and UI for monitoring and making changes to the SIPs. | Intermediaries often offer a single platform for all your investing needs, which makes monitoring and managing investments much easier. |
The main difference between AMC SIP vs SIP of a regular plan is that the former helps you avoid brokerage fees or commissions, which are included in the expense ratio of regular plans. This distinction affects how suitable an AMC SIP vs Normal SIP is for different types of investors. Experienced and cost-efficient investors may want to go for an AMC SIP as they know what they’re doing and are confident in their ability to research and manage their portfolios.
On the other hand, regular plan SIPs would be better suited for beginner investors who need guidance from advisors on which fund to choose, how to allocate investments, and how to manage and monitor their portfolios.
Which is Better: AMC SIP or Regular SIP?
All this discussion begs the question – which is better AMC SIP or SIP in a regular plan? Well before that question is answered, here are some things you should know about mutual fund investing:
- There are over 40 AMCs operating in India currently and combined, they offer around 2,500 different mutual fund schemes. For a new investor, sorting through the mountain of options can be a tough task.
- When selecting a mutual fund, assessment is done largely based on three aspects – the fund’s qualitative factors, quantitative factors, and the investor’s profile.
- Qualitative factors include assessing the AMC’s experience and reputation, investment processes, risk management strategies, fund manager’s track record and investment philosophy, and so on.
- Assessing quantitative factors includes things like judging an AMC and scheme based on its AUM, historical returns, expense ratios, risk-adjusted returns, and comparisons with benchmarks and competitors.
- Assessment of an investor’s profile pertains to understanding their financial situation – things like income, assets, debt, savings, and investments, their financial goals, risk tolerance, and responsibilities. The most important thing in the process is ensuring the investor’s profile aligns with the selected fund.
Based on the above factors, it’s fair to say that selecting the most suitable mutual funds is a complex process that requires time, patience, and knowledge. Those who are experienced in investing and have a good understanding of market trends, risk profiles, and fund strategies will find it easier to analyse and choose the right funds based on their financial goals.
However, for less experienced investors, the guidance of a reliable financial advisor or mutual fund distributor can be invaluable. They will not only help them select the right funds but also monitor them and suggest changes during regular reviews. During market downturns, newer investors especially can feel panicky and make poor decisions fueled by fear. In such times, a professional can help them stay calm and focused on their long-term goals.
Most investors have multiple SIPs tied to different financial goals. This is one of the basis of goal-based financial planning, where each goal can be targeted separately. It’s rare to have multiple SIPs in the same AMC. For example, a man may invest 50% of their monthly savings in an ICICI large-cap fund, 30% in a mid-cap HDFC fund, and 20% in a small-cap Nippon fund.
If these are AMC SIPs, he’ll have to invest through different platforms. This means separate accounts on each AMC’s website, making monitoring and managing SIPs complicated. In such cases, some might prefer the shared platform of regular SIPs, which makes management much more convenient.
Ultimately the choice between AMC SIP vs SIP in regular plans depends on an investor’s experience, and how much they prioritise saving some extra money. A beginner investor might be drawn to the lower fees of AMC SIPs, assuming that lower costs automatically lead to better returns. But in their process, they might not take into account the many factors they should. Consequently, they can end up earning much lower returns compared to professionally guided regular SIPs.
How to Invest in AMC SIP
Investing in an AMC SIP works the same way as any other SIP on online investment platforms, the only difference being you’ll need to register yourself with the AMC itself through their official website or app. Here are the steps you can follow:
- Select the AMC and mutual fund scheme – Based on your financial goals, risk tolerance, and investment horizon, select suitable mutual funds.
- Register with the AMC – Go to the official website of the AMC that offers your selected scheme. Here you’ll need to create an account, complete your KYC, and link your bank account, among other things. Make sure to have important documents such as Aadhaar or PAN handy.
- Fill out the SIP form – This form will include details like how much you want to invest, how long you want to invest, and how frequently you want to invest. Fill these categories carefully, set up the auto-pay, and submit the application.
- That’s it! On the date you specified, the investment amount you filled in will be deducted from your linked bank account and automatically invested in the mutual fund scheme you selected. You can always log in to the portal and keep an eye on how your investment is doing.
Conclusion
Regular SIPs involve intermediaries like mutual fund distributors who guide you through the investment process, whereas AMC SIPs are those investments you make directly through the AMC’s web portal. The difference between AMC SIP vs SIP in regular plans is that AMC SIPs have lower expense ratios on account of them not involving any third parties. When it comes to the choice between AMC SIP vs Normal SIP, AMC SIPs can be considered an option for experienced and cost-conscious investors who can spend the time and effort researching and managing different SIPs across AMCs.
However, most investors, especially beginners, should opt for regular SIPs as they come with the backing of mutual fund distributors and advisors, who provide valuable guidance and personalised advice, and whose expertise can help investors pick the right funds. Always make sure that your advisors and distributors have the relevant certifications before you trust them with your investments.
