Systematic Investment Plans have become increasingly popular among mutual fund investors over the years. This is because many mutual fund experts believe SIPs are the best way to invest periodically in the market. They also allow you to invest funds in periodic instalments which help reduce risk and build long-term wealth.
However, understanding SIP mutual funds and the process before investing is crucial. It helps you have a healthy habit of investing, minimising risks, and achieving your financial goals. Keep reading to discover how to start your first SIP investment.
What is SIP?
Systematic Investment Plans is an investment option in mutual funds that allows you to invest a specific amount regularly towards different mutual funds. Investors decide if they want to invest in a daily, weekly, monthly, or quarterly manner. These help you steadily meet your long-term financial goals. SIP investment plans help distribute your investments over time and maximise returns. Also, it gives the option to pause and restart investments as per your comfort.
Types of Systematic Investment Plans
Regular Systematic Investment Plan
Under a regular Systematic Investment Plan, investors invest in the mutual fund of their choice at regular intervals. These can be monthly, bi-monthly, quarterly, or half-yearly, depending on their income. However, it cannot be changed once you register your SIP.
Step-up or Top-up Systematic Investment Plan
Step-up Systematic Investment Plan allows you to increase the SIP amount at predetermined intervals according to the value of your portfolio. For instance, you can start by investing Rs. 10,000 each month and instruct the fund house to increase the SIP amount by Rs. 3,000 every six months till the end of the tenure. A top-up SIP is perfect for salary earners with regular yearly or half-yearly increments. Or beginners that want to build their portfolio slowly.
Flexible Systematic Investment Plan
A flexible Systematic Investment Plan allows you to decrease or increase your investment. That is, you can increase your investment when the markets are performing well and decrease it when the markets are falling. These give you complete control over your investment compared to a regular plan. Flexible SIP is also the perfect option for investors with an unstable source of income.
Perpetual Systematic Investment Plan
A perpetual SIP is an investment plan with no start and end date. That means it is deemed to run until 2099. It can only end when the investor submits a written application to the fund house. Perpetual Systematic Investment Plan is good for investors with no specific goal or tenure.
Easy steps to start your SIP Investment
Have a financial goal
The first and most crucial step to consider before starting SIP is to define your financial goals. Have a WHY and WHEN because they compel you to invest regularly, irrespective of the market conditions. Are you investing to pay your loan, education, marriage, vacation, and more? Your answer helps you determine what mix of investments is best for you.
Complete your KYC Authentication
Completing your KYC Authentication is mandatory to be able to invest in SIP. These can be done by filling up a KYC form with basic information and submitting a soft copy of your pan card and address. The details include name, date of birth, address, and mobile number. After verification, a video call will be scheduled to confirm your physical presence. You can also complete your KYC online through the online trading app or mobile trading app of the mutual fund house or CAMS KRA.
Select the fund that suits your financial goal
Selecting the most suitable fund based on your financial goals and risk appetite is paramount. But, these can be confusing and overwhelming with many mutual fund options available. So, it is advisable to seek the help of a professional or an experienced financial planner.
Choose an investment scheme
Choosing the frequency of your investment is important to keep you focused and achieve your financial goal. Do you want to invest weekly, monthly, or quarterly? Or do you want to invest on specific or multiple dates? These help you invest according to your income and your convenience duration.
Register for SIP online
Register for your Systematic Investment Plan by visiting the website of the fund house you want to invest in. Search for a Register Now or a New Investor and fill in the required basic details. You will be asked to enter your bank account details to set up your online transaction. Also, choose a username and password. Then select the scheme you wish to invest in based on your financial goal.
Systematic Investment Plans are a smart and hassle-free way of reaching your investment. It ensures discipline, reduces the risk of volatility, and consistent mutual fund investment. These help investors reach their financial goals and also create wealth.