All You Need To Know About Systematic Investment Plan (SIP)
Published On Aug 16, 2021, Updated On Jun 07, 2023
Table of Contents
- How To Invest in a Systematic Investment Plan (SIP)?
- Advantages of Investing via SIP
SIP or Systematic Investment Plan is an investment vehicle that allows individuals to periodically invest a small but considerate amount towards their preferred mutual fund scheme. Details such as the frequency of the investment, the date on which it takes place, and the investment amount are pre-determined by the investors. Investors prefer investing in SIP as it helps mitigate risks and promotes disciplined financial planning among them while encouraging regular investing habits. By investing in SIP, individuals can efficiently operate in both rising and falling markets and claim the benefits of both.
How To Invest in a Systematic Investment Plan (SIP)?
If you are wondering how to start investing in SIP, follow these simple steps:
1. Know The Investment Objective And Your Risk Appetite
You should first understand your risk tolerance before investing in mutual funds. After you have assessed your risk appetite, it is vital to understand why you want to invest and define your financial goals. It is essential to determine the objective of your investment to fetch an ideal portfolio mix of debt and equity.
2. Choose The Appropriate Mutual Fund
There are many types of mutual fund schemes available, the selection of your mutual fund should be aligned with your financial goals, risk appetite, and investment horizon. While picking the fund, you should also take its past performance into account. Once you have zeroed in on the mutual fund company you wish to invest in, follow these steps:
a) Online Process
Incase of a new investor create a new account or login with existing account credentials.
Duly fill the KYC (know your customer) details and make the payment online.
b) Offline/physical Process (In case you want to submit paper form)
Duly fill the application form and KYC form. If you plan to opt for the offline mode, fill-up a cancelled cheque along with ADF. However, if you opt for the online method, fill up the ADF and submit at the nearest branch to be provided to the bank or opt for billpay / e-mandate /e-nach payment mode. Provide requisite identity proofs like address proof, utility bills, etc.
3. Select The Date Of Your Sip Investment
You can choose a date as per your convenience. You can also opt for multiple dates for several SIP investments in a month.
4. How Long To Invest In Sip
Investing in SIP is one of the most appropriate ways to fulfil your financial objectives. You can also consider using an SIP calculator to estimate the returns on your mutual fund investments.
Advantages of Investing via SIP
SIP has several advantages that are discussed here:advantages-of-SIP
1. Rupee Cost Averaging
It provides the benefit of Rupee Cost Averaging, as the investment continues regardless of the upward or downward trend in the market, and so it averages out the cost of investment.
2. Power of Compounding
By investing in mutual funds through SIP, an investor gets returns on the returns, by way of compounding, which ultimately increases the overall value of the investment.
3. Disciplined Approach
SIP adds discipline to your investments by maintaining consistency in investments. This helps in building wealth over time.
4. No Need To Time The Market
In a systematic investment plan, an investor gets more units, if the price is low whereas if the price is high more units are received. In this way, the average cost remains at a lower level, which makes it irrelevant to time the market.
5. Long-term Investment
As you invest small amounts via SIP and so one can start investments at an early stage and grow gradually. In this way, the investments spend more time in the market and grow over time.
Once you are all set to take the SIP route for your mutual fund investments, the next part – how to start SIP – is not challenging at all. Remember, the earlier you begin with your SIP investments, the higher the opportunity of potential wealth creation. So start investing in SIP today.
Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.