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Best SIP Investment Plans in UAE

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Financial planning can be quite similar to our routine coffee – one sip quickly to the next, and a feeling of contentment can take over in the blink of an eye after the entire cup is completed. To feel such contentment with your finances, you can start with similar ‘sips’, or, more precisely, SIPs. 

Systematic Investment Plans, widely referred to as SIPs, make for an excellent choice to start building your corpus by investing in the mutual funds market with small amounts at regular intervals.  Do them for the long run, and you can reap great returns come over time!

In this article, we will shed light on SIP investments in UAE, how they work, what are the benefits and types of SIPs, and so forth. 

SIP Calculator
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(From 1 to 40 Years)
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What is an SIP Investment?

A Systematic Investment Plan or an SIP is an investment route for mutual funds wherein you can invest a fixed amount in such funds at regular intervals, say monthly or quarterly. This amount could be as low as AED 500, almost resembling recurring deposits. You can use SIP investments plans to achieve your goal with investment and saving plans without drastically affecting your regular budget and financial obligations.

Initiating an SIP is easy. For instance, let’s assume that you would like to invest AED 1,000 per month for 5 years. In this case, you can give your bank standing instructions to debit the said amount each month and automate your contributions. This convenience, combined with the offered flexibility, makes SIPs a popular investment mode in the UAE. You can easily select the duration of your investment period at your convenience and opt for weekly, monthly, quarterly, and annual contributions.

A remarkable benefit of SIPs is that they allow you to invest in a disciplined manner. You can invest regularly and gain good returns without tracking the market dynamics minutely.

Note: An SIP is not an asset in itself but only a type of investing in mutual funds

How Does the SIP Investment Plan Work?

As an investor, you would have to choose a mutual fund scheme aligning with your financial requirements and budget under the SIP method. Discussed below are the key steps in the process of SIP investments in UAE –

  • Opt for a Mutual Fund Scheme – The first step here is to choose the mutual fund you want to invest your funds in

  • Investment Frequency – The next step is to choose an investment frequency depending on your budget and planning. You can make SIP investments on a weekly, quarterly, semi-annual, or annual basis.

  • Set Up SIP – Once you have selected the mutual fund, you can set up your SIP. All that you are required to do is provide the bank details, SIP amount, and frequency.

  • Automated Debits – After setting up an SIP, your specified amount will be deducted from your account as per your chosen frequency.

Who Should Invest in SIP Investment?

SIP is an ideal way of investing for all those who wish to invest their chunk of savings at regular intervals without being required to invest a large amount in one go. With SIPs, you can slowly grow your money without compromising your basic needs and lifestyle.

If you fall under any of the categories mentioned below, you can opt for an SIP to diversify your investment portfolio –

  • You are planning to invest in stocks in an organised way

  • You wish to inculcate discipline in regular savings and investing

  • You want to have a diversified and balanced stock portfolio

  • You want to invest your money without taking a big risk

  • You plan to build an equity plan over a long period

  • If you don’t have a knack for the market and are new to the subject of investment

  • You need flexibility in your investment

  • If you have long-term financial goals like going on a world tour, buying your dream home, building a corpus for your child’s education, and so on

  • If you want to avail of the benefits of the power of compounding and cost averaging

  • If you don’t want to make a lump sum investment

Types of SIP Investment plans in UAE

There are mainly 4 types of SIPs – Fixed SIP, Perpetual SIP, Top-up SIP, and Flexible SIP. Let’s take a look at each type of SIP in this section.

Fixed SIP

As the name suggests, it is the simplest form of SIP in which you are required to make contributions at regular intervals. When you open this SIP, you can choose the investment tenure, frequency, and contribution amount at your convenience. The key feature of this type of SIP is that you cannot alter the contribution amount at a later point in time.

Perpetual SIP

Perpetual SIP has no fixed tenure, meaning that you can make contributions as long as you want at regular intervals. This type of SIP is best suited for investors who don’t have any specific tenure or goals in mind. One of the remarkable features of perpetual SIP is that it gives them the power to redeem their investments when they require or see fit. Apart from this difference, perpetual SIPs are similar to fixed or regular SIPs.

Top-up SIP

Top-up SIP, also referred to as step-up SIP, allows you to increase your contributions at defined intervals. Top-up SIP can be an ideal choice if you are a salaried individual who gets regular half-yearly or yearly increments, as your SIP contributions are automatically increased in line with your salary increment without manual intervention. You can also opt for this SIP if you have just started your business and would like to steadily increase your contribution to it.

Flexible SIP

Flexible SIPs give you the power to change the contribution amount or even skip a few contributions. So if you don’t want to invest a fixed amount and prefer active control of your investments, flexible SIPs can make for a good option here.

Why Should You Invest in a SIP Plan in UAE ?

Mentioned below are the key benefits of investing in SIPs in UAE –

1. Cost Averaging

With the help of SIPs, you can invest in equity funds through a fixed amount on a regular basis. This allows you to buy more units when the stock market is low and fewer units when the stock market is high. Due to purchase price averaging, the impact of market fluctuations on your investment will substantially reduce.

Refer to the example below to understand how cost averaging works –

Suppose Mr. Abdullah invests AED 6,000 every month in mutual funds through an SIP. The Net Asset Value (NAV) of the equity funds will, naturally, fluctuate as the stock market is highly volatile. Let’s assume Mr. Abdullah invests AED 6,000 per month from January to June 2022. In this case, his SIP investment schedule could look like the table given below –

Month

SIP Amount

Net Asset Value (NAV)

Units

NAV (Lumpsum)

Units with Lumpsum

January

AED 6,000

100

60

100

300

February

AED 6,000

98

61.22

 

 

March

AED 6,000

96

62.5

 

 

April

AED 6,000

102

58.82

 

 

May

AED 6,000

100

60

 

 

Total

AED 30,000

99.2

302.54

100

300

Because of cost averaging, the Net Asset Value (NAV) cost per unit is 99.2. If Mr. Abdullah had invested in lump sum i.e., AED 30,000 in January with the purchase price of AED 100, he would have been only able to purchase 300 shares or units (2.54 fewer units than now).

Furthermore, the value of investment would be different if he had invested the funds in a lump sum. Let’s assume he invested AED 30,000 in January, his investment in May 2022 would have been AED 30,000. Nevertheless, due to cost averaging, his SIP investment value in May would be AED 30,254. Simply put, cost averaging helped him average out the purchase price of shares over time.

2. Power of Compounding

You can grow your returns over time with the help of the power of compounding of SIPs. It is to be noted that to make the most of compounding, you should start investing in mutual funds through SIP as early as possible and stay invested for the long term.

To get some context on the power of compounding in action, refer to the example given below –

Suppose Mr. Khan wants to invest AED 12,000 per annum in mutual funds through SIP. Assuming a 5% rate of return, here’s how much he would gain over different investment tenures –

Investment Tenure (Years)

SIP Amount (AED)

Final Corpus (AED)

Estimated Returns (AED)

1

12,000

12,330

330

5

60,000

68,289

8,289

10

120,000

155,929

35,929

15

180,000

2,68,403

88,403

20

240,000

412,746

172,746

As we can see from the table, the accumulated corpus of 20 years leads to a sizeable corpus and considerably higher returns than the other four. So if you stay invested for a longer horizon, you can end up with a sizeable investment portfolio.

3. Low Initial Investment

A notable benefit of investing in SIP is that you can start with as low as AED 500, as mentioned earlier. What it means for you, as an investor, is that you won’t have to wait to collect a lump sum amount before starting your investment. Thus, you can start investments as soon as you start earning and stay invested for the long term, which can bring you great returns as seen in the previous point.

4. Financial Discipline

As you would be investing a fixed amount at regular intervals, your SIPs can help you enhance your financial discipline as well. This can help you easily deal with other financial obligations and bigger investments over time.

How Much to Invest in SIP Investment Plans?

If you are not sure how much you should invest in an SIP, you can start with the 50:30:20 rule as your point of reference. As per this rule, you can devote 50% of your income to your indispensable expenses, 30% to your wants and leisure, and the rest i.e., 20% to savings and investments.

Refer to the table below to understand the meaning of the terms stated above –

Indispensable Expenses

Essential expenses like utility bills, medical expenses, EMIs for car loans or home loans, rent, and so on

Wants and Leisure

Things like watching a movie, buying a gadget, dining out, travelling, and more

Savings and Investments

Mutual funds or SIPs, equity investments, and more

With that said, there is no fixed amount that you should invest in SIPs, as the amount is highly dependent on your income, inflation, and lifestyle. To find out an approximate amount, keep the following factors in mind along with the 50:30:20 rule –

  • You should first assess your short-term and long-term goals. To attain long-term goals, you can start investing in mutual funds through SIPs. Long-term goals can include your future health expenses, corpus for retirement or your child’s education plan, wedding expenses, and so on.

  • The return on investment is proportional to the risk you would like to take. Generally, the longer the horizon, the higher risk you can opt for. For example, if you are a 26-year-old investor and plan to save for your retirement, you can opt for a high-risk portfolio. On the other hand, if you are investing funds for your marriage in the next 2 or 3 years, you should opt for low-risk funds.

  • If you are planning to invest in a high-risk fund for the long run, you can also consider the small-cap mutual funds offering high returns on investment.

Difference Between SIP Investment and Lump Sum Investment

There are two methods to invest in mutual funds – SIP and Lump Sum (one-time investment). In an SIP, as we have seen in detail, you would have to invest your funds in mutual funds in a systematic manner, with a fixed amount being automatically taken from your account and invested in a mutual fund scheme for a predetermined term. In contrast, lumpsum investment means investing in mutual funds in one go.

For instance, if you have AED 60,000 to invest in mutual funds, you could either make a lumpsum investment of AED 60,000 or invest AED 12,000 per month over the next 5 months by starting an SIP.

To decide which one is better, check out the table below and find the specifics of each mode –

Parameters

Systematic Investment Plan (SIP)

Lumpsum Investment

Cash flow

On regular intervals

One time

Flexibility

High

Low

Risk quotient

Low to moderate risk

Moderate to high risk

Cost of investment

Less due to cost averaging

High due to one-time massive investment

Time of investment

Generally immune to market volatility

Subject to market conditions

Top Performing SIP Investment Plan in UAE

Listed below are some of the top-performing SIP funds in UAE –

  • Standard Chartered Smart Savings Plan

  • Citibank Systematic Investment Plan

  • ADCB Systematic Investment Plan

  • HSBC Systematic Investment Plan

  • Emirates NBD Monthly Investment Plan

How to Choose the Best SIP Investment Plans?

The ‘One size fits all’ approach is not appropriate when opting for mutual funds in UAE. An approach that is right for you may prove inappropriate for another. The answer rather lies in several factors that should be kept in mind before deciding on the mutual fund scheme.

Some of the major factors that could impact your decision are listed below –

Past Performance of the Fund

To analyse a mutual funds scheme, it is crucial to understand how it has performed in the past as this highlights its ability to clock returns across market conditions. Funds with good track records would give good returns than those which have not performed well in the past.

While checking the past performance of any fund, consider the risk-adjusted returns, portfolio concentration, time horizon, portfolio turnover, and so on. However, keep in mind that this should not be the sole basis of the comparison – several other parameters have to be considered as well.

Fund Age

Besides performance, you should also check for how many years the fund has been in the market. Generally, it is advisable to go for funds that have been in the UAE market for more than 3 years – the older the mutual fund, the better it can be for investors.

Portfolio Concentration

Having only one type of fund in your investment portfolio means the risk would be quite high, as any negative developments in this sector can quickly deteriorate your savings. It is advisable to diversify your investment portfolio to mitigate the risks and keep a regular check on the concentration of the fund’s holdings.

Assets Under Management (AUM) Factor

The AUM gives a fair idea of the assets that a particular fund holds or the market value of the fund. A high AUM indicates that the fund is reputable and the risk quotient is low. Generally, the bigger the AUM, the higher the trading values of the fund, demonstrating that a large number of investors have invested in the corpus.

Investment Horizon

It is essential to understand the tenure for which you want to stay invested to choose the best mutual fund scheme for SIP. Some funds, for instance, have higher 3-year returns than 5-year returns and vice versa.

Risk Appetite

Coming to the final point here, assessing your risk appetite before starting to invest in mutual funds is non-negotiable. High risks, for instance, are related to high returns as well. So if you have a high-risk appetite, you may choose a high-risk fund that may bring you high returns. On the other hand, if your risk appetite is low, it is better to choose a secure fund with stable returns.

The Secret to Achieving a Big Payoff with SIP

To maximise your returns and make the most out of an SIP, keep the following tips in mind –

  • List down your short and long-term objectives and work out a plan to attain them through SIPs

  • Keep aside some portion of your monthly income right from the start to make the instalments of your chosen SIP

  • Conduct thorough market research and identify the mutual fund scheme that would help you achieve your goals in the stipulated time frame

  • Try to invest for the long term to avail of the twin benefits of cost averaging and power of compounding through different market cycles

  • Invest in different SIPs to diversify your portfolio and optimise the returns as per your requirements

Let’s have a look at the most frequently raised queries related to SIP investment in UAE.

How to calculate the estimate returns on SIP investments?

You can use SIP calculators to compute the estimated returns on your SIP investments in UAE.

What is the best time to invest in SIP in UAE?

There is no specific good or bad time to invest in an SIP in UAE. The only thing to remember here is that you should start investing in SIPs as early as possible to earn good returns – the longer you invest in an SIP, the higher profits you could gain.

How to shorten my SIP duration?

You can contact your bank or fund house by writing an application or request online to shorten your SIP duration. However, it is to be noted that your minimum investment tenure must be completed before you submit the request.

How much should I invest in mutual funds through SIP?

You can start investing in SIP with as low as AED 500, with no such restrictions generally applying to the upper end. Ultimately, the amount that you should invest in an SIP would depend on your income, age, risk appetite, financial goals, expected tenure of investment, and more.

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