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Chapter 3.7: How to start an SIP investment

Summary:

  • To start a systematic investment plan (SIP), you must first complete the KYC formalities.
  • Online registration for an SIP is easy and convenient.
  • Before choosing a mutual fund scheme, decide how much you wish to invest via SIPs.

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How to start an SIP investment

Starting a systematic investment plan (SIP) is easy once you know how much to invest and how often. It is simple enough—just complete the KYC formalities, register for an account, and start investing!

You may sometimes wish to invest a big sum, but you do not have the full amount at one go. A systematic investment plan (SIP) can come in handy here.

SIPs allow you to invest small sums at regular intervals to buy mutual fund units. This helps inject discipline into your investment habits. If you frequently end up spending more than you should, and not investing enough, SIPs can get you on the right track.

(Read more: What is a mutual fund?)

So, how do you start an SIP? Here is an outline of the procedure involved:

Step 1: Complete your Know Your Customer (KYC) formalities

To invest in mutual funds—whether through an SIP or otherwise—you will first need to become KYC-compliant.

Arrange for the necessary documents:

The paperwork requirements for starting an SIP are rather basic. You would need the following documents:

  • PAN card

  • Proof of address (e.g. Aadhaar, passport, voter ID, utility bill, driving licence, etc.)

  • Passport-size photograph

  • Cheque book (to provide your bank details)

(Read more: What is a KYC document?)

Begin the KYC process:

Start by visiting the website of a fund house that offers the eKYC (i.e. electronic KYC) facility. You could also visit the online portals of registrar and transfer agents like CAMS and Karvy.

At this stage, you will have to provide your name, date of birth and contact details, among other basic information. Upload soft copies of your PAN card, address proof and photograph to support the details provided.

Complete the in-person verification:

You would need to schedule an appointment for a video call. The objective is to confirm your identity through a webcam. You will also have to show your PAN card and address proof at this stage.

An easier option:Using your Aadhaar card can simplify the process. Here is what you need to do:

  • Enter your Aadhaar number.

  • Enter the one-time password sent to your linked mobile number.

  • Your basic details will be automatically filled in.

  • There is no need for verification via a video call.

Keep in mind:Aadhar-based KYC limits you to a yearly investment of Rs 50,000. To extend this amount, you will need to provide your PAN card details.

Once you are KYC-compliant, you can invest in any mutual fund scheme from any fund house you like. You do not have to go through the KYC process each time you approach a different fund house.

(Read more: How mutual funds work?)

Step 2: Register for an SIP

Your focus now should be on registering for an SIP in a mutual fund scheme of your choice. How should you go about this?

  • First, visit the website of the fund house that offers the scheme.

  • Look for a link to register a new account. (You may find a button that says ‘New Investor’ or ‘Register Now’, for example.)

  • Once you click on this link, you will be taken to a simple application form. Here, you must fill in your basic personal details and contact information.

  • At this point, you may have to choose a user ID and password for carrying out transactions online.

  • Provide the details of the bank account from which the SIP payments will be debited.

Once the registration is complete at your end and the fund house has sent a confirmation, you are ready to start investing.

Step 3: Select the right SIP

What is the right SIP for your needs? It will depend on your income and expenditure, your financial goals, and the amount you are willing to invest.

How much should you invest?

Experts often suggest linking an SIP with a financial objective (e.g. buying a car, paying for a vacation, building a retirement corpus). Use an SIP calculator to assess how much you need to save on a monthly or quarterly basis to achieve that goal.

When should you invest it?

Scan your past bank statements to check when exactly your salary and other income payments come in. Use this information to set a date on which to debit the SIP amount.

What should you invest in?

The sheer number of options available to you can be confusing. If your risk tolerance is high, an equity-linked plan could be a good fit for you. Those with a lower appetite for risk can look at debt or balanced funds instead. Studying current market trends and the past performance of funds will help you make the right choice.

(Read more: How to choose a mutual fund scheme?)

WHAT NEXT?

  • Simply log in to your account at any time using your user ID and password.

  • Select the scheme of your choice.

  • Specify the amount you wish to invest and the payment intervals.

The SIP will start around a month after you complete this process.

Why Capital gains report?
  • Snapshot of profit/loss
  • Reflects performance of your portfolio
  • Helps compute taxes
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