s‘SIP karo’ has long been a major focus of the mutual fund industry with Rs 44,000 crore flowing through them into mutual funds in FY 17. In an acknowledgement of the success of SIP or systematic investment planning, Indian cryptocurrency exchange Unocoin has launched an ‘SIP’ in bitcoin. Bitcoin is a cryptocurrency, a virtual form of money powered by blockchain technology.
The idea of SIPs was popularized by mutual funds through a multi-pronged media campaign. It met with considerable success and monthly SIP accounts stood at two crores in numbers in Jan 2018.
What is an SIP
An SIP or Systematic Investment Plan invests a fixed amount in a mutual fund each month. It averages out your purchase price and protects you from catching a market high, as we explain here. It also protects you from panic if markets crashed because your money is being invested gradually rather than in one go.
SIPs in Bitcoin
However, until now, there has been no application of SIPs to investment in cryptocurrencies. Unocoin’s SIP is an attempt to bring such a combination into existence.
The company will allow SIPs of as little as Rs 50 and will not levy any extra charges on the SIP. However, ordinary spreads between the buy and sell price (which the company charges for any bitcoin transaction) will apply. The company will offer daily, weekly or monthly SIPs.
Mutual Funds SIPs are usually done by giving one-time mandates or auto debit instructions to banks to allow the money to flow automatically into the chosen fund. However, this is unlikely to happen with cryptocurrency SIPs. In all likelihood, you will have to transfer your money to your crypto trading account before it can be invested in a systematic manner.
Bitcoin has had an extremely volatile ride. The cryptocurrency went from $1,000 in February 2017 to a jaw-dropping $20,000 in December 2017. The currency has slid back since then and currently trades around $8000.
It has also come under a spate of regulatory actions in India. Officials from the Income Tax Department surveyed major bitcoin exchanges in December 2017 to check for tax evasion. The Registrar of Companies has stopped registering bitcoin exchanges. Some banks have halted their cards from being used for bitcoin payments and clamped down on accounts maintained by bitcoin exchanges. Major tech companies such as Google, Facebook and Twitter have also banned bitcoin advertisements on their platforms.
However, the Government of India has not explicitly banned bitcoin. In a statement made in February, the Government clarified that it views bitcoin as an asset and not a currency. A committee has been appointed to develop a formal policy on the subject.
Will SIPs in bitcoin work?
Before you can answer this question, you have to decide whether you want to invest in bitcoin in the first place. The cryptocurrency does not pay any interest or have any earnings backing its value. On the other hand, the supply of bitcoin is limited by design and worldwide supply of ‘mined’ bitcoin is close to these limits. Certain countries like Japan and Russia also take a more relaxed approach towards the cryptocurrency holding out the potential for its spread as a payments mechanism.
If you are set on investing in bitcoin, an SIP is likely to provide you with some level of de-risking. However given the sheer volatility of the cryptocurrency, this will be nowhere close to the effect of SIPs in mutual funds. If you are set on proceeding, proceed with great caution.
You can read more about the Unocoin SIP, here.