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.
(Read more: What is a mutual fund?)
To answer how to start a SIP investment in India, here are a few easy steps.
Before investing, you must ensure that all necessary documents are in place. Since this process takes a lot of time, it is recommended that you start by ensuring all your records are stored and ready for use, such as:
Also, make sure your bank account number and banking details are correct. You will also need to be provided with a copy of your passport or driving license. Make sure that they meet the existing Know Your Customer rules set by the government if you plan to invest in other than cash.
It is essential to follow the KYC requirements established by the government before investing in any financial instrument. To do so, you must complete an application form at any of India's authorized banks or post offices that issue prepaid cards.
If you do not wish to visit a bank's branch personally or if there is no one nearby your residence, you can apply online. Personal details such as name, address, photo ID proofs, and a driving license or passport shall be given in the application form, along with an expression of your investment.
You must first register yourself with an Indian broker or financial advisor you wish to deal with to start investing in a systematic investment plan. Once registered, you can choose from various investment plans to meet your requirements and risk profile.
This is the most important step. It will not be easy to get a good return on your investment if you don't choose the right plan. There will be different plans, each with its features and benefits.
Ask yourself this before choosing your plan. How much risk can you bear? What are the numbers of units = shares you want? What type of investor are you?
Choose the amount you wish to invest in the scheme. You must choose how much money you will invest monthly or weekly. It depends on how often you need money and how much it's worth at any given moment.
Choose a date that is convenient to you. In a given month, you can select several dates for different SIPs.
Start a SIP by submitting the form online or offline, depending on your fund house, as soon as you've chosen a mutual fund company. You can submit your SIPs online if you have an existing Demat account. In addition, you can submit it by post office or bank.
It's free and easy to sign up for a SIP. Most banks and securities firms have plans to automatically deposit their money into index funds or shares, which is a good way of doing it. Furthermore, you can invest in SIPs online through an Internet investment service or through direct purchases of individual stocks and bonds from a broker or financial advisor.
You must complete the ADF and bring it to the branch of your nearest bank if you pick the online option, or you can choose the e-mandate/billpay/e-nach payment option.
As you decide how to invest in Sip mutual funds, the following considerations should be taken into account:
1. Think about your investment horizon : The investment horizon is defined as the period during which you plan to invest. Think of it this way: if you plan on investing in your retirement funds over the next 10 years and don't know when they need to be used or if you need every penny today, you will probably want more conservative investments.
2. Take a look at your financial objectives : Your investment goals can be established as longer-term financial goals you try to reach with your money. It may cover investments for retirement, the establishment of an emergency fund, or the savings needed to buy a major purchase like a house or car.
3. Knowing your appetite for risk : You must know your risk appetite before investing in a Systematic Investment Plan. Your investment objectives and risk tolerance determine how much money you invest yearly.
4. Seek financial advice : You must consult a financial advisor before investing in systematic investment plans. You can get assistance from several financial experts in selecting investment funds. However, suppose you wish to discuss your objectives and determine whether a systemic investment plan suits you. In that case, it may be best to make an appointment with your local advisor or accountant.
5. Calculate the return of your SIPs : Once we know our risk tolerance, we can forecast how much money would be needed monthly based on the target portfolio size from this SIP calculator. The calculation of how much money must be invested every month for each year left in retirement is done using this calculator, considering the initial deposit amount and the years up to retirement.
The best thing about using the calculator is that it will display monthly contributions and annual returns over time to give you a sense of exactly how long it'll take before your investments pay off.
The advantages of investing in SIPs are mentioned below.
1. Rupee Cost Averaging: Rupee cost averaging is the concept of buying more units when the NAV of the fund is low and less when the NAV is high. In essence, this benefit of the SIP ensures that throughout the SIP, the cost of purchasing mutual fund units will be average. If you invest through a SIP, you don't have to worry about timing the market, which is one of the main benefits of investing through a SIP.
2. Flexible Investment Amount: One of the major advantages of SIP over lump sum investments is the ability to invest in mutual funds through SIP with as little as Rs 500 every month. It's an easy way to invest monthly; you don't have to worry about your wallet. You can increase your monthly investment by making more money through the Systematic Investment Plan Step-Up feature. Moreover, the number of SIPs and Mutual Funds you may invest in together is unlimited. The SIP Investment Strategy can, therefore, help achieve the investment targets more quickly.
3. Flexible Investment Tenure: The flexibility of your investment tenure is another benefit of the SIP. You may need to invest at least six installments of the SIP in some Mutual Funds. However, it is not forbidden to make systematic investments in the fund over a while. If you are making a lump sum investment in mutual funds, this flexibility to invest through SIP for an unlimited period or as soon as possible is not available.
4. Power of Compounding: When your investments start producing returns, this is when compounding takes place. Even though it's a simple idea, there are many practical uses for it. Your returns can also be reinvested with regular investments through the SIP. This results in a snowball effect, which increases the potential return multiple times over time. Investing for an extended period is an ideal way to maximize gains.
So, how do you start an SIP? Here is an outline of the procedure involved:
To invest in mutual funds—whether through an SIP or otherwise—you will first need to become KYC-compliant.
The paperwork requirements for starting an SIP are rather basic. You would need the following documents:
Proof of address (e.g. Aadhaar, passport, voter ID, utility bill, driving licence, etc.)
Cheque book (to provide your bank details)
(Read more: What is a KYC document?)
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.
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?)
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.
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.
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.
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.
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?)
In short, SIPs provide a lot of benefits to many investors around the world, and they offer some or other good value. However, it is important to note that SIPs are not a miracle method for getting back the money. The value of the underlying assets that the SIP invests in also depends on your profits. It is, therefore, necessary to conduct a thorough survey of the mutual funds you intend to invest in. To invest in SIPs, check out the Kotak Securities app.
A portion of your income, which you can reasonably afford to spend each month, should be invested. A general rule of thumb is to invest 10-15% of your monthly income in SIPs.
SIP belongs to the Equity Linked Savings Schemes (ELSS) category EEE (Exempt, Exempt, Exempt). Taxes will not be levied on any of the monies invested, received at maturity, or withdrawn.
If you want to generate steady potential returns quickly, 1-year term investment products may be a good choice. Depending upon the scheme's portfolio, annualized returns of 3% to 5% may be expected when you invest in these funds for a year.
Quantitative and qualitative parameters are used to determine how to select the best SIP to invest. Select the SIP according to the risk appetite.
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