SIP Investment is a systematic investment plan for beginners to invest a small amount of money regularly rather than a lump sum amount. This smart and sophisticated beginner's investment plan is offered to investors to grow their investment portfolio along with a lot of benefits like maintaining market volatility, easy monthly investments, power of compounding, and reducing risks.
An ultimate guide to SIP investmentSIP or Systematic Investment Plan is a smart investment strategy that helps the investor to invest a small but fixed amount of money at a time, every month during a particular time horizon. A strategic way of investment protects you from market risks that are fluctuations in prices due to any impact on the market.
You can start investing in mutual funds with Rs. 500 as a minimum amount through SIP. The amount of money to be paid every month is fixed. Some allow to invest monthly, bi-monthly, and fortnightly.
Another regular Systematic Investment Plan is Alert SIP. This alerts the investors to purchase more units when the value in the market reduces. If you are investing through Perpetual SIPs then the investor does not have to choose the end date of investment.
Types of SIP are- Top-up SIP - This allows the investors to increase the amount of SIP at regular intervals. Besides this, it offers the advantages of well-performing schemes by increasing the investment corpus.
- Flexible SIP - This allows you to change the SIP amount according to your income. During a financial crisis, you may decrease or skip a few instalments.
- Perpetual SIP - Here the end date of the SIP is not mentioned and you can end it any time whenever your financial goals are met.
- Trigger SIP - This is best for knowledgeable investors who are aware of the market fluctuations. It allows investors to set a particular date, NAV, and an index level of the SIP.
- It averages the purchase cost. When the market price is low you can purchase more units and purchase fewer units when the market price is high. The effects of market ups and downs are reduced.
- Maximizes the return rate.
- It has the power of compounding. When you are investing for a longer period, you earn returns over the returns earned from the main investment. This increases your investment capital and fulfils your long term goals.
- It enables you to enjoy benefits from a diversified investment portfolio with small investments. Investing in more than one asset reduces the risk amount and balances the gain and loss properly leading to high returns.
- You don't need to time the market. Thus it is time-saving.
- Regularity in savings reduces the pressure of one-time investment of a huge corpus.
- It is hassle-free.
- It offers flexibility to the investor to increase or decrease the amount of corpus they are investing according to their preference. One can start and exit a SIP any point of time.
- Associated with lower risks factors.
To select a particular SIP, you must keep certain things in mind. These are -
- The mutual fund you are going to invest is in the market for at least 5 years.
- The bank must operate the fund.
- It must be a reputed fund house with recognized performance and returns.
- The total corpus of the fund houses should be huge. This proves its reliability.
- Make a plan and go through it while avoiding the ones that are associated with high risks.
- Invest in tax saver plans. This reduces hefty tax payments and increases your corpus.
- Choose the best ranking funds, marked by CRISIL.
SIP is not an investment but a process in which one can invest in a mutual fund. There are certain misconceptions about SIP. Some of them are -
- SIP investment - There is no restriction on the amount of investment. It can range from Rs 1000 to Rs 1 crore. The strategy is best for long term investments. It should be well disciplined and in a periodical manner.
- Penalty for stopping SIP within the investment period - No penalties are charged for stopping SIP. You can start and stop a SIP at your convenience but you need to submit a duly signed written request for the purpose.
- Offers Low Returns - If you are investing for a short-term then the returns may be low as it is dependent on the internal rate of return. So if you are investing for long-term then only opt for SIP. Only then the investor can earn good returns.
- Investing in SIP is similar to an investment in stocks - No, they are not the same. All SIP funds don't invest in stocks rather they offer a diversified investment portfolio. You can invest according to your own choice and the amount of risk-taking capacity.
- A large sum of money to invest- No, you don't need a lump sum amount of money at the time of investing in SIP funds. You can start investing with Rs. 500 and make the subsequent investments monthly, quarterly, or any other options of your choice. The investor has the flexibility to create, stop, or update SIP. They reduce market risk.
To start a SIP online, follow the steps -
- The first step is to get all the necessary documents. This includes a PAN card, proof of address, a copy of the photograph (passport size), and a cheque book. To simplify the process, your Aadhaar number is useful.
- Next become a KYC complaint by providing all your basic information like name, address, date of birth, mobile number etc. This is a one time process, and you can invest in different fund houses or multiple fund schemes later on.
- Several fund houses offer eKYC facilities. Visit their website and fill in all the necessary information, upload the soft copy of all your documents, and confirm your physical existence through a scheduled video call.
- Once you complete the KYC complaint successfully, visit the website of the fund house you want to invest. Search for the registration link and create a new online transaction account.
- After successful registration, log into the account and select the mutual fund scheme, select the SIP date and submit it.
- You can now regularly invest without considering any market fluctuations and increase your capital amount in the long run.
While Investing through SIP, you must not invest too much or too little, and always prefer to invest for the long-term. Long-term investments through SIP are way more advantageous than short-term. One last thing to remember is that you must change the amount of SIP from time to time to beat inflation.
