An SIP, or systematic investment plan, is a structured way of investing in mutual funds. When you make SIP investments over some time, the small amounts that you put in help you build up a corpus. You can also choose the auto-debit option, where the SIP amount goes out of your bank account at fixed intervals. The investment method is quite popular with investors in India. Let’s understand how to invest in SIP.
How does SIP work?
Systematic investment plans, or SIPs, are a way to invest regularly, usually monthly. Let’s say you make ₹70,000 a month. You have saved ₹30,000 after paying for your expenses. You want to keep ₹10,000 as cash in hand. You can invest the remaining ₹20,000 in a mutual fund of your choice through SIP. You can invest the amount in a single mutual fund SIP or spread it out among different funds to diversify your portfolio. When deciding how to invest in SIP, remember that using the SIP means you want to invest a set amount on a set date every month. You can take your money out of the mutual fund anytime.
How to invest in SIP
Mutual fund investors prefer SIPs as it helps them invest in a controlled way without worrying about market fluctuations or trying to time the market. SIPs offered by mutual funds are, arguably, the best way to start investing for the long term. Always think about the long term when you invest, which means you should start saving early to get the best results. Here is a step-by-step guide on how to invest in SIP.
Step 1: Set investment goals
It is important to understand how to invest in SIP for beginners. Be clear about your financial goals, your risk appetite, and the time frame of your investment. This will help you pick the best mutual fund scheme for your SIP.
Step 2: Keep the required documents handy
Getting your papers ready is the first step to starting an SIP. These include your PAN card, proof of identity (POI), proof of address (POA), and information about your bank account.
You need to ensure that your name, IFSC code, bank account number, and other information are correct. You may also need a copy of your passport or driver’s license for the Know Your Customer (KYC) process.
Step 3: Complete your KYC
You need to finish the KYC process once your papers are ready. During this process, you will need to furnish the necessary documents to prove who you are and where you live. You need to provide information about yourself, like your name, address, PAN number, and bank information. If you need to do your KYC, you can go to an AMC office. You can also get your KYC done online.
Step 4: Register for an SIP
Once you’ve finished the Know Your Customer (KYC) process, the next step is to sign up for the SIP. You can finish this process online by going to an AMC (Asset Management Company) or broker’s website or app. Now that you have understood how to start an SIP investment, you must know that you need to give some basic information to open an account, and you need to finish the signup process.
Step 5: Choose a mutual fund scheme
When deciding how to invest in SIP, remember you need to mention the fund you want to invest in when you sign up for an SIP. You should select the plan based on your risk appetite, duration of investment, and financial goals. Before choosing the fund, you should also look at its performance history, expense ratio, track record of the fund manager, and other factors.
Step 6: Choose the SIP amount and date
Here, you’ll decide how much, how often, and when you want to invest. The amount you chose for your SIP will be debited from your account periodically, as per your mandate.
Step 7: Set up auto debit
When your SIP is due, you can pay it upfront or use the auto-debit facility to have it deducted from your bank account. To do this, you will need to fill out an e-mandate form and allow for your SIP to be deducted from your bank account.
Step 8: Submit your form
After filling out the form, the last thing you need to do is send it to your AMC or broker. You can also do it online.
Things to consider before starting your SIP
When someone first starts investing, they often want to know how to use SIP. But it’s not enough to know how to start an SIP investment. You also need to know what to keep in mind before you invest in the best SIP plan. Once you have understood how to invest in SIP, you should think about the following points.
Investment goals
Before you put money into this plan, you should have a goal in mind, whether it’s to buy a house or pay for kid’s education. Once you are clear what your goals are, it will be easy to figure out which investment plan will work best for you.
Investment horizon
This is the duration of your investment. You need to be clear how much time you need to be in the market to achieve your goal. If you do not have many years, you might need to increase your SIP amount.
Risk appetite
Investing comes with risk, and how comfortable you are with risk will determine how your SIP portfolio’s assets are split up. If you are risk-averse, you might want to invest in a mutual fund scheme that invests in large-cap stocks.
Fund performance
Look at how the mutual fund plan has performed during different market cycles. Investors need to see that performance is consistent over a period ranging from three to five years. Understanding how to invest in SIP, making an investment plan, and managing funds consistently over a longer length of time are crucial. Also, look at how the fund has done compared to its peers.
Fund manager
Fund manager’s reputation and skill sets are crucial factors to consider. Investors should try to gather info about the fund manager’s background, experience, and how the funds have performed in the past. Selecting a fund manager should be done with care to understand how to start SIP better. Pick someone who has a history of making smart financial choices.
Charges
This is a one-time fee you need to pay if you invest Rs. 10,000 and above in SIPs. The transaction fee can be between Rs. 100 to Rs. 150. There is no transaction fee for investments less than Rs. 10,000.
Calculate your SIP returns
Market returns are not guaranteed, as it can fluctuate according to stock market performance. Still, you can use systematic investment plan (SIP) calculators, which are online tools that can be used to estimate returns from SIPs. Enter the amount you want to invest, the duration of investment, and the expected rate of return. Once you key in these details, the SIP calculator will display the estimated amount.
Seek financial advice
Expert advice from a financial advisor is recommended if you want to understand how to invest in SIPs, but don’t know much about the market trends or the benefits of this type of investing. A financial advisor will be able to tell you how to go about the process. You can learn more about the important things an investor needs to know before starting a SIP from the above guide.
Conclusion
The regular investment plan, or SIP, has made it easier for individuals to plan their finances. People who have a regular monthly income can invest their money and get better results if they use SIP to invest in mutual funds.
In this article, we have provided all the information you need on how to invest in SIP. Â
