Systematic Investment Plans (SIPs) have become popular among individuals who are willing to build their wealth over time. SIPs offer a flexible method of investing in mutual funds, making them accessible to both beginners and experienced investors. You need to invest money in the scheme periodically at predetermined intervals. Investing regularly can help you achieve your financial goals.
In this blog, we will discuss how to invest in SIPs, the factors to consider before investing and a brief understanding of SIPs.
Understanding Systematic Investment Plan
A Systematic Investment Plan (SIP) is a strategy to invest a fixed money in a mutual fund scheme at fixed intervals. It can be monthly, quarterly or yearly. There are certain advantages of investing in SIP. Some of them are:
- SIP allows you to purchase more units at low prices. These numbers decrease when prices go up, ensuring you do not make bad investment decisions.
- SIP inculcates the habit of saving by ensuring regular investments.
How to Invest in SIP in India?
If you are new to the investment landscape, here is a step-by-step guide on how to invest in SIP for beginners.
Step 1: Keep the Necessary Documents Handy
Before you start investing, ensure that you have these documents ready:
- PAN card
- Bank account details
- ID proof, like passport, Aadhaar card, etc.
- Copies of driving licence or passport (as per requirement)
- Address proofs, like a rent agreement, electricity bill, etc.
Step 2: Ensure Your KYC is Completed
It is important to ensure compliance with the KYC norms set by the Indian government. Completing your KYC involves filling out a form with your details at an authorised post office or bank, which issues pre-paid cards. You do not always have to visit a branch as this process can also be done online. The form is likely to consist of your personal information like your name, photo ID proof, address and a declaration of your investment.
Step 3: Register for an Investment Plan
Before you start your SIP, it is important that you select and register with a financial advisor or broker. If you want to know how to invest in SIP without a broker, you can opt for online investment platforms, where you will be provided with a variety of options. Select the option which caters to all your objectives.
Step 4: Select an Appropriate Investment Plan
Out of the various investment options available, it is crucial to select the one which offers your desired returns along with benefits. Additionally, ensure that the investment plan aligns with your risk tolerance level.
Step 5: Decide an Investment Amount
You must mention the amount you want to invest in your chosen scheme. To avoid any additional burden, analyse if the monthly or weekly contribution aligns with your financial goals and duration.
Step 6: Select a Convenient Date
You can select a date as per your convenience and invest in SIP. Additionally, you are also eligible to select various dates for multiple SIPs within a single month.
Step 7: Submit the Application Form
Upon selecting a MF company, you need to submit the SIP application form. This way, you can start your Systematic Investment Plan or SIP. This can be done in both modes– online and offline.
To do this online, follow the steps below:
- Account Creation: Create a new investment account or sign in to your existing account with valid credentials.
- KYC Completion: Provide all the required KYC details.
- Online Payment: For the final step, make the payment digitally.
Here are the steps for you to complete the process in offline mode:
- KYC and Application Forms: Submit the SIP application along with the necessary KYC forms.
- Authorise Your Payment: Provide an Auto Debit Form and a cancelled cheque to authorise your payment.
- Identification and Verification: Provide address proof, utility bills and other necessary documents for identity verification.
Factors to Consider Before Investing in a Systematic Investment Plan
There are certain things you must keep in mind before investing in a Systematic Investment Plan (SIP). Some of them are:
- Financial Goals and Duration: One of the primary factors you must consider before you invest in a SIP is to be clear about your financial goal. This will allow you to determine your level of risk tolerance and the duration for which you can invest in the fund.
- Fund Performance: Make an evaluation of the mutual fund performance. Consistently good performance for 3 to 5 years is crucial to determine the skill of fund management.
- Track Record of AMC: Evaluating the track record of Asset Management Companies (AMCs) is crucial before you select a mutual fund for SIP. The track record will help you determine the reliability and credibility of the AMC in investment management.
Final Word
It is advisable to diversify your investments to mitigate risks, seek professional advice when required and select funds based on your risk tolerance and goals. By understanding how to invest in SIP and considering the outlined factors, you can start making your investments and eventually build your wealth.
Frequently Asked Questions (FAQs)
Q. What is the SIP of ₹5,000 per month for 5 years?
A. Assuming a return of 12%, the estimated total return for your monthly investment will be ₹1,12,431. The future value (estimated) will be ₹412,431.
Q. Is SIP better than Fixed Deposit?
A. If you are a risk taker, SIP can be a good option for you. Otherwise, if you wish to build your wealth steadily and are looking for safe investment options, fixed deposits are one of the best options for you.
Q. Is SIP tax-free?
A. While SIP is not tax-free, your investment in the ELSS mutual fund qualifies for tax deductions u/s 80C of the Income Tax Act. You are eligible for claiming deductions of ₹1.5 lakh yearly.
