How to Invest in SIP?

Mutual funds are the new piggy banks. Everyone looking to multiply their wealth via mutual funds ponders over one perennial question – how to invest in a SIP? While it might sound very complex and tedious, it actually is very simple. SIPs, or Systematic Investment Plans, help make periodic investments in a scheme over a long period. Unlike lump sum investments, an investor isn’t required to produce the entire amount upfront. Rather, small but regular amounts are directed towards a scheme. It’s a long-form game where you build your innings over time to reap its benefits.

SIPs are designed to simplify investments. These periodic plans help investors develop a financial discipline of savings. Dive deep into this article, discussing how to start SIP investments in all its details.

How Does SIP Work?

Before deciding how to start SIP, let’s look at its foundations. SIPs function on these major principles:

• Regular Investments: SIPs allow investors to choose the interval at which the amount will be regularly deducted from their bank accounts. While the most common frequency is monthly payments, different schemes offer quarterly, fortnightly and other options.
• Rupee Cost Averaging: Such a routine of regular investments helps mitigate risks of loss for an investor. The average purchase cost balances itself out when investments are made over a long period. This makes SIPs a cost-effective way of investing and less vulnerable to market fluctuations.
• The Power of Compounding: This principle emphasises that the longer the investment, the greater will be the returns. Instead of investing for 1 or 2 years, a continuous commitment for 10-15 years results in exponential growth of an investor’s money.

How to Start SIP: Step-By-Step Guide

SIP investments can be carried out offline as well as online. Follow these simple steps and become an investor today.

Step 1: Choose the Right Scheme

The first step is to clarify your financial objectives, explore the multitude of mutual fund schemes available in the market and choose the one that aligns with your plans. While selecting a scheme, review its past performance and other key parameters.

Step 2: Register With the Mutual Fund House

Register with the mutual fund house once you’ve landed on the right scheme on their website or at the nearest branch. Whether SBI, HDFC, Franklin Templeton or any other mutual fund house, registering with the company is a crucial pre-requisite to SIP investments.

Step 3: Decide on the SIP Amount

After considering your monthly income and financial standing, choose an amount you can comfortably and consistently invest in the fund. This amount will be regularly deducted from your account every month.

Step 4: Decide the Date of SIP

Choose the date the SIP amount can be automatically deducted from your bank account every month. Most investors choose the next date after their salary gets credited.

Step 5: Choose the Duration of SIP

The longer you invest, the better will be the return. Our customers can use Urban Money’s free SIP calculator to ascertain the right investment horizon per their goals.

Step 6: Submit Your Application

This is where you actually start investing in the scheme. The steps to submit an application are as follows:

• Offline Applications: Visit your fund house’s nearest branch and submit the application form. Carry your chequebook with you, as you might be asked to pay the SIP amount via cheque or submit a cancelled cheque. Additionally, complete the auto-debit and KYC forms upon the representative’s instructions. Do not forget to carry your identity proof, address proof and PAN card.
• Online Application: Log into your account or create a new one at the mutual fund company’s website. Select the scheme and click on ‘Invest Now’. Fill in the required details and upload the necessary documents.

Things to Consider Before Investing In SIP

Apart from how to start an SIP, what to keep in mind while starting an SIP is an equally potent question. Look at the following factors, which must be paid attention to before you decide to invest in a mutual fund scheme.

• What’s Your Goal: You might want to accumulate funds for a new purchase, or you might want to increase your side income, or you may even be looking to generate heaps of wealth in the long run. Once your investment objective is figured out, most of the mutual fund investment process simplifies.
• Your Risk Appetite: Once your financial objectives are clear, decide upon how much risk you are willing to expose your investment to. While ‘high risk and higher returns’ is a general rule, your risk appetite must align with your financial standing.
• Guage the Fund: Look for schemes that have either consistently outperformed market conditions or have showcased stable performances even during unfavourable conditions. Glancing over past returns or consulting your financial advisor are good steps.
• Figure out your investment horizon: Longer investments and higher returns go hand in hand. As an investor, you must be clear whether you want a small, medium or long-term commitment. SIPs are especially suited for long-term investments.
• Use a SIP Calculator: Urban Money’s free digital SIP calculator provides advance estimates of profits you can earn by investing in a scheme. This helps investors gain a true picture of the actual potential of their investments.

How Much to Invest in SIP?

The simple philosophy of SIP investments is this – to each their own. An important factor is that while how much you invest is important, how consistently you invest is also equally significant. Therefore, while choosing a monthly SIP amount, decide upon a sum that you can consistently pay over a duration of time without a miss.

Further, your monthly earnings determine how to open a SIP account. An investor earning ₹1 lakh monthly can comfortably set aside ₹5,000 for a monthly SIP. While an investor earning ₹50,000 a month might feel comfortable paying a SIP of ₹2,000. Therefore, complement it with consistent and regular payments no matter the amount you choose.

How to Set SIP Goals

The primary SIP goal of every investor should be to ensure that their portfolio gets the desired risk, as per their needs and risk tolerance. Another important factor is to ensure portfolio diversification over time. A diverse portfolio ensures better returns and fewer risks. Follow these tips while investing in a scheme:

• Always choose a scheme from a reputed fund house
• Prefer funds that have been operational for five years or more
• Choose the scheme which has a sizeable worth of total assets
• Ensure that your SIP is in conjunction with the linked bank account

Say Yes to Intelligent Investing

As we conclude, the simple answer to how to invest in SIP is to get started. While making SIP investments, one must keep in mind that consistency is the name of the game. An investor of today is the leader of tomorrow. Now that we’ve demystified SIP investments for you choose the right schemes and make consistent investments to gain the maximum returns.